Superannuation
Super scorecard to shift consumer playing field

An independent think tank is launching a sustainable retirement scorecard as a self-assessment tool for superannuation funds to benchmark performance in managing members' retirement.

The Committee for Sustainable Retirement Incomes (CSRI) is introducing the scorecard at its 2018 leadership forum in Canberra today. The scorecard is based on an integration of five core capabilities: strategy and governance, understanding and engaging consumers, financial advice, investment strategies and products, and assessment of consumer outcomes.

Presenting the scorecard and an accompanying discussion paper at today's forum is CSRI founder and executive director Patricia Pascuzzo. In the paper she said "superannuation's success relies ultimately on how well it allows consumers to manage the financial risks they face in retirement when they no longer have the security of employment income to cover their living expenses."

"Recognising the limitations of financial metrics as the primary performance benchmarks, a greater focus should be placed on a broader set of key performance indicators to assess how well superannuation funds assist consumers in managing the heightened risks they face in retirement," Pascuzzo said.

She adds not all superannuation funds will have the capabilities and scale to meet the needs of retired consumers. To this end Pascuzzo said super funds will need to consider partnering and outsourcing strategies.

Also speaking at the forum is Challenger chairman, retirement income, Jeremy Cooper. He said Australia's superannuation system is maturing faster than most people think.

He points to latest APRA data (see Figures 1 and 2) which shows the average super balances of more than 1.6 million retired members is now over $250,000.

Figure 1. Largest super funds by assets in retirement phase

"Many people are now accumulating super balances that will make a meaningful difference to retirement and there's a need for the super industry to do more to help them spend down their money safely with cash flows that last for life," he said.

For the top 10 industry funds the average retirement balance was $292,000, Cooper said.

Figure 2. Largest industry funds by assets in retirement phase

"On a household basis, at retirement our super system is delivering meaningful balances. So much so that six out of 10 retirees are now partly or fully funding their own retirement," he said.

Because of this growth, many super funds now manage assets for their retired members alone that run into tens of billions of dollars. However, these assets are not distinguished from the assets of those still working in many funds, even though retirees face different risks, Cooper said.

He added the Federal Government's Retirement Income Framework will deliver more clarity and choice for Australian retirees.

"Government proposals for a retirement income framework, including comprehensive income products for retirement (CIPRs), are a big step forward. They will be an enhancement, not a disruptive change. Retiring members will only get a CIPR if they purposely choose to have one. Even then, the product everyone has now, an account-based pension, will remain the major component of most CIPRs," Cooper said.

Another speaker at the forum, Dimensional Fund Advisors resident scientist Professor Robert Merton, said Australia's plan to reorient its superannuation system towards an income goal will require a change in risk management.

The Nobel Prize-winning economist envisages a retirement system which takes the weight of financial decision-making off the shoulders of ordinary people.

CSRI has also pointed to the Productivity Commission's most recent report on super, challenging the industry to improve consumer outcomes on a wide front.

"One of the underlying problems is that members at all stages find the super system too hard to navigate, and do not know where to turn for help," the Commission's draft report noted.

Merton said while Australia's superannuation system rates highly, its lump sum goal pays no account of the risks to retirement income. Neither does the system provide sufficiently meaningful information to consumers.

"Putting relatively complex decisions in the hands of individuals who have little or no financial expertise is problematic," Merton said.

"While some argue for increased financial literacy, it is simply unrealistic to expect people to make good decisions on strategies that challenge even seasoned professionals."

CSRI's Pascuzzo said the sustainable retirement scorecard is intended for consultation and remains subject to review and input from industry stakeholders. It is envisioned the scorecard will be developed into a certification program to identify super funds "that have the capability to better manage the complex financial risks that consumers face as they transition to, and during, retirement."

Read more: retirementsuperannuationAustraliaCSRICIPRRetirement Income FrameworkCanberraChallengerCommittee for Sustainable Retirement IncomesDimensional Fund AdvisorsFederal GovernmentJeremy CooperNobelPatricia PascuzzoProductivity CommissionRobert Merton
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