Using MySuper to boost engagement with superannuation

AMP’s Libby Roy believes MySuper could, in fact, be a catalyst to increase member engagement with their super.

The introduction of MySuper is drawing near and its intent is to help ensure Australians accumulate an adequate retirement nest egg during their working lives. But it could also prove to be a valuable impetus to get people more engaged with their retirement.  

When it was first announced as part of the Cooper reforms back in 2010, the Federal Government declared MySuper would be a vehicle for those Australians who elected not to make a ‘choice’ in their superannuation. 

It stated, “MySuper is predicated on providing a simple, cost-effective product with a diversified portfolio of investments for the vast majority of Australian workers (shown to be above 80 per cent of members) who are invested in the default option in their current fund.” 

In short, it was to be a solution for those customers who weren’t terribly worried about where they had invested their super, until closer to the time they need to access it or until something went wrong, with the Government’s over-arching intention to protect the wealth of those customers who are not engaged. 

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So what does a disengaged customer look like? The answer of course is, they can look like anyone. Young or old, male or female.  

Women continue to lag behind their male counterparts when it comes to their superannuation balance, often due to time out of the workforce for family. 

The AMP 2012 Retirement Adequacy Index shows the overall percentage shortfall of women’s superannuation balances relative to men’s is 32 per cent. 

The million dollar question is, how do we get customers to be more engaged? MySuper offers are being created with the purpose of meeting the needs of the ‘average’ person. As most of us know, there really is no such thing as average.

Ask a group of people if they think they have an ‘above average’ sense of humour and it’s unlikely any of them will disagree. 

Each individual’s circumstances are different. We don’t know what their assets look like outside super. With MySuper, the industry is compelled to make assumptions about people. 

But of course not everyone fits those assumptions. And it is here that we can use MySuper as an impetus to encourage people to have greater interest in their superannuation.

If it’s true that you don’t fit the mould of the average customer – and most would say they don’t – then perhaps it’s time to get engaged with your superannuation. 

A life-cycle investment approach will typify many MySuper products in the market.

Following this strategy will see a customer invested in high growth assets in earlier years, gradually moving to a more conservative allocation as they reach their 50s and beyond. 

On seeing such an asset allocation mix, an engaged customer, with a range of assets outside super, might question why they are not invested in higher growth options in later years, and would take appropriate steps to ensure they have the right mix to protect their wealth but to also offer access to growth assets in their later years.   

As an industry we need to protect those people who are either unaware, or aren’t yet concerned about their super, which is one of the benefits for customers we should see from MySuper. 

Those people who have not made a choice – we can’t let them reach the age of 60 and be exposed to sequencing risk, which as we know can be damaging for pre-retirees and can unwind a lifetime of sound investment decisions.

It’s not just about how much we retire with, it’s about when, and putting strategies in place to make sure we have control over when we retire. 

As an industry we need to get better at giving disengaged people simple choices. Not simplistic, but the opportunity for them to take control of their retirement without onerous roadblocks.

For example, a customer could receive communication from their fund – and today that could be via many channels, such as letters, emails, smartphone apps – explaining how many dollars per month they could allocate to their superannuation before reaching their contribution cap. 

We should be able to demonstrate to customers in simple terms what their retirement nest egg will look like – in 25 years, at an average rate of return of 6 per cent. 

Pre-populate the paperwork for customers and remove the burden. Tailor it to the customer by colouring it with relevant examples.   

For a younger person you could show the benefits of compound returns, or illustrate in dollar terms the tax advantages of salary sacrificing into their superannuation. 

For an older person, highlight the importance of strategies to protect their wealth – targeted strategies to protect where they are at each particular point in their life. 

It’s estimated that individuals will need 65 per cent of their pre-retirement income to maintain their current lifestyle in retirement. The average retirement balance for those aged 60-64 is only around $77, 000. 

While an average 25-year-old today, who will benefit from a more mature super system, can expect to retire with a lot more, we need to ensure they are armed with the right knowledge to maximise their retirement savings. 

Technology can play a transformative role as an enabler to respond to changing customer preferences. Enhancing the digital experience has rewards not just for the customer, but for the employer and adviser, in improving operational efficiencies. 

The opportunity here is to ensure that the communication is relevant to individual needs and not just built around the industry compliance requirements. 

New technology and communication mediums present an opportunity to provide individuals information when and how they are most likely to read it. Mobile communication devices play a key role here and we need to leverage this channel. 

Most people who saw their investments take a hit as a result of the global financial crisis will attest that it’s often better to be more conservative and encourage customers who are not making active choices to do more, than it is to go further and assume they should take risks – and find out too late that they have gone too far. 

Individuals thinking about their retirement should always consider what their starting position is, what their goals are and how much risk they are willing to take on to achieve their goals.

This is where the value of advice really comes to the fore – and where it can make a difference in the standard of people’s retirement. 

There will always be people who will not actively seek financial advice. As part of MySuper there could be an opportunity in the future to consider offering customers a basic financial plan, catered to those born within a certain decade. 

As an industry we’re starting to improve our ability to offer scaled advice to more Australians, and this should continue in circumstances where it is appropriate and suitable to a customer’s needs. 

MySuper has been designed to give Australians the confidence that their superannuation will support their future retirement. As an industry let’s ensure that we use it to improve customer engagement.

The transparency offered to customers by a digital environment, with access to sophisticated but easy-to-use modelling tools, will continue to influence superannuation providers to remain truly competitive and benefit customers who seek a provider who clearly articulates and delivers on their promise. 

Libby Roy is director of corporate superannuation at AMP.