2014 - a year of policy consolidation

As 2014 draws to a close and the super industry starts preparations for the year ahead, it seems that at long last there is time for reflection. Indeed with MySuper rapidly approaching its first anniversary, the consensus seems to be that the superannuation landscape has shifted. 

Following a long period of reform, funds have found respite and for Damian Hill, Chief Executive Officer of industry fund REST, it has given executives an opportunity to take stock. 

"I think what's changed in the 12 months since MySuper was introduced is the fact that funds have moved from being very internally focused to being far more externally focused," he said. "I mean, there was so much effort put into the regulatory response that I think the mandate for funds to actually execute against their own strategy, to continue to know and understand their members, was lost to some extent." 

For Hill, the sheer scale of the regulatory response required by the industry could not help but impede others aspects of the superannuation proposition. And while Hill said that the initial signs for MySuper were all positive, funds' various offerings were still very new. 

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"I think we're still finding out exactly what the implications of MySuper exactly are with regard to competition and what that will mean going forward," he said. "But now that it has been implemented, its certainly been necessary for funds to lift their eyes up and think much more about their own members' demographics." 

"They've had to think and about growth and put strategies in place to sustain success going forward." 

Sharing similar views, Patricia Montague, Director of Superannuation and Investment Platforms for AMP, said that MySuper had undoubtedly been a major initiative for the super industry. 

"And certainly, the early indications are that MySuper is doing what it intended, which is ultimately to bring down costs for consumers," she said. "But I think we're starting to see a shift in the conversation around superannuation away from just focusing on fees and charges." 

"Now we think that is a good thing for the industry, because focusing on that alone doesn't take into account risk-adjusted investment returns, which is ultimately what matters for long-term savings outcomes for consumers." 

According to Steven Gaffney, Chief Executive Officer of Aon Hewitt Pacific, because the changes implicit in Stronger Super, MySuper and SuperStream had been so significant, the industry would be reflecting not just on the rollout but on how that rollout had affected individual members. 

"So if we're looking back at the last 12 months, I think the industry would still be reflecting on how its rolled out MySuper and SuperStream," he said. "And I suppose we live in an age where we're obsessed with member engagement and what the members are thinking and how they've been impacted." 

"So I would say that we're also thinking about how to connect with individual members," Gaffney continued. "And I'd call that consumerism or retailisation or something to that effect but that's certainly where these reforms have placed the super industry's focus." 

"That idea of consumerism, of how individual members are catered for within a fund, is rife." 

Yet whether it is the advent of MySuper or the fact that the industry's reform implementation is largely complete, it seems that the individual member and funds' overall service offering are now front and centre for executives.  

And for Montague, that fact is reflected in AMP's 2014 achievements, the majority of which targeted communications and engagement. 

"AMP has launched new mobile and tablet apps which allow customers to access their banking, superannuation, insurance and investments, as well as access to AMP's North platform and other investments," she said. "We know that people engaged with their superannuation are more likely to achieve their retirement goals, and educating our customers on their superannuation choices is an important focus for us." 

"With that in mind, AMP recently launched a refreshed version of its website, forming part of a regular update to our platforms to ensure we're delivering the best experience possible to our customers," Montague continued. "The focus for the renewed AMP website was to improve ease of access to simple information and insights, increase the services available and reduce time required to complete online transactions." 

On the topic of investment performance, Montague said that the progress made by AMP in 2014 had also been pleasing. 

"AMP Flexible Super has continued to perform well and in the first half of 2014, increased its assets under management by $1.2 billion to $11.2 billion as a result of strong net cashflows into both superannuation and retirement products," she said. "We're also pleased with the ongoing success of our North platform." 

"North recorded its highest ever quarterly net cashflow of $1.5 billion in the third quarter this year, the sixth consecutive quarter of net cashflows of $1 billion or more, making it one of Australia's most popular platforms," Montague explained. "And North's innovative capital guaranteed options continue to remain attractive to customers who are looking for peace of mind with their retirement savings." 

Bringing the conversation back to MySuper, Gaffney said that in Aon Hewitt's experience, product development had itself been an opportunity to engage and connect with members. In fact, Gaffney said that doing so had been a key achievement for the Aon Master Trust. 

"So we won a couple of awards which got us into the media spotlight," he said. "But we're still, I would say, a boutique master trust." 

"We've only got $2.8 billion in what is a $0.7 to $0.8 trillion industry but despite that, I've been very impressed with how our product team has implemented MySuper," Gaffney continued. "Like a number of other industry funds and retail master trusts, we decided to take a lifecycle approach, to progressively reduce the risk profile of investments from age 42 down to age 67 where they become ultra conservative." 

"Those investment changes take place annually and I think that was a good innovation in terms of matching our investment approach to our membership's demographics." 

However for Gaffney, the Aon Hewitt team's work around insurance had been equally impressive. 

"So our focus was being innovative in that space, particularly with respect to insurance premiums," he said. "The insurance premiums of most superannuation funds have risen over the last year or so but we put some innovation in around the relevance of insurance and in our default option, we ensured we had a higher TPD (total permanent disablement) number or insured amount." 

"What we wanted was for a younger person to go into the default option and have a lesser death benefit but greater TPD," Gaffney added. "And that's because from a younger person's perspective, you're not necessarily going to need a death benefit." 

"They're at that age where if something was to happen to them injury-wise, they would almost certainly prefer the TPD." 

Of course, irrespective of what aspect of superannuation one was talking about, Gaffney said that the industry was trying to engage with fund members in a way that reflected exactly what it is they require. 

"So its not just one in, all in with regard to either a balanced fund or an insurance number," he said. "We have to have the right numbers and the right structures in place so that individuals can invest and be insured correctly." 

"It has to be cradle to grave in these sorts of things," Gaffney added. "So if you're not engaged at all with superannuation, then we look after you but at the same time, if you are engaged, we've got an advisory network that can offer zero advice all the way through to full advice and anywhere in between, again depending on what the individual wants." 

"And from my perspective, it comes back to that idea of consumerism - we're trying to match with the person's requirements as opposed to a one in, all in approach and I think that's where we've got an advantage over many of our competitors." 

Yet outside of MySuper and funds' individual initiatives, the one thing waiting in the wings for Australia's superannuation industry, it is the Financial System Inquiry. And though not specifically aimed at superannuation, Hill said that individual funds would almost certainly feel its impacts regardless. 

"For instance, I imagine there will be some measures dealing with the governance of all superannuation funds," he said. "And I particularly think that the issue of leverage and SMSFs (self managed super funds) will come under the microscope." 

"But I suppose the bit that we're most interested in, and we were so motivated by it that we put it in our own submission, is the value of active investment management," Hill continued. "We hope to see that its still open for funds that offer MySuper products to have active investment management." 

"From our perspective, that is absolutely critical because it can result in substantial benefits for members of the longer term." 

Alternatively, Montague said that while superannuation had certainly featured in Financial System Inquiry submissions, significant impacts and further reform was not necessarily something the industry embraced. 

"The intent of the review is to help create a competitive and stable financial system that delivers what Australians want while ensuring growth and we support this," she said. "Stability and consistency in superannuation settings is important to encourage participation and consumer engagement with and within the system." 

"However, we would question how much of the focus should be on superannuation and advice when you consider the issues around stability and that the impacts of the latest rounds of legislation, including MySuper, are still working through the system." 

But while a degree of reform fatigue on the part of super industry executives is to be expected, the point of discussion that should have everyone's attention is post-retirement. Between the Financial System Inquiry and recent industry dialogue, the issue has started to gain prominence but according to Hill, there is still no silver bullet. 

"Post-retirement is an area where there is no silver bullet," he said. "I don't think anyone has it and I don't expect anyone will be able to say 'well, here's the one solution that will work for everyone.'" 

"So yes, we've started to see elements of innovation for small cohorts this year," Hill continued. "But again, there is a lot more work to be done in understanding members, their expenditure patterns, and obviously their expectations as well." 

Illustrating his point further, Hill said that when REST had conducted research within its own membership, it had been quite clear that the concept of appropriate risk during a member's accumulation and drawdown phase was still not understood. 

"Its quite clear that they struggle to understand a number of those sorts of concepts," he said. "And so there's still a whole piece to be done with regard to understanding and then simplification in the eyes of members." 

"But the good news is that I suspect at least some of that will be done via default systems, which the Financial System Inquiry may facilitate in some respects." 

Looking back at what the super industry and wider financial services industry had brought to market in 2014, Gaffney said that he wasn't sure that there had been any great strides made when it came to post-retirement. 

"I suppose there's various products coming out and longevity risk is clearly something that funds and institutions are focusing on," he said. "But as a community, I think we're still grappling with longevity risk, trying to define what might be an appropriate approach." 

"And so I'll be very interested to see what comes of the Financial System Inquiry, what the regulator are expecting and what they're allowing," Gaffney continued. "I mean, I came over from the a pension-based system in the United Kingdom in 1987 and they were telling me how pensions were the future all the way back then and yet I still don't think we've got there." 

"We've got an allocated pension within our own superannuation fund and it works quite well but is it really the right thing in terms of tackling longevity risk? That's the question we all have to be answering." 

So as 2014 draws to a close and the super industry enjoys a well earned Christmas break, it seems funds have their 2015 priorities firmly set. Stronger Super, MySuper and SuperStream have been game changers but for Hill, it is time to move forward. 

"Coming back from the break, I'd say we'll be starting the planning for 2015/16," he said. "But more specifically, we'll be working very hard to understand what this newly competitive landscape will be and how it has changed as a result of MySuper." 

"In our view, understanding what our strengths and weaknesses are in that area is vital," Hill continued. "Because from there, we need to look at the team that we have and the services that we're offering, to build the capabilities of the organisation to ensure we meet those challenges going forward." 

According to Gaffney, MySuper and a growing appetite for consumerism within the community meant that 2015 would be all about the individual. 

"We've got to engage with those individual members," he said. "So I'll be very interested to see how what we've done with MySuper is accepted and embraced by our members." 

"I'll be very keen to see how our advisors and our people are progressing in terms of that engagement because the reality is that a very large part of the superannuation population continues to be disengaged," Gaffney continued. ""And that makes for an interesting conundrum." 

"So as much as we try to say 'let's engage our members' and it's great that we can engage our members, the unknown is exactly what sort of penetration we're actually achieving." 

Taking  Gaffney's thought further, Montague said that AMP's ongoing focus would be making sure it had service offerings in place that met the needs of customers. 

"And that's particularly around retirement," she said. "Australia is facing a rapidly aging population and as an industry we need to develop retirement solutions that enable Australians to enjoy the maximum possible retirement income." 

"That's our focus at AMP," Montague explained. "We also want to continue to educate customers on the benefits of choice when it comes to their superannuation." 

"AMP has also been very clear that we're transforming our business to become more efficient, making sure we have the right products and services, and continue to put the customer at the centre of everything we do."