Default super is about to become a whole lot more competitive, but perhaps not in the way many of us imagined.
Most of the commentary on the Your Future, Your Super reforms to date has understandably focused on the pressure created by the new performance test and harsh consequences for funds who don’t meet benchmark returns.
However, the Government’s decision to implement ‘default once’ reforms while retaining the links between default super and industrial relations system creates a system which will force funds to consider member acquisition very differently.
First, and most obvious, the change in default fund allocation means a disengaged member who doesn’t choose their own fund will now potentially spend their entire career in the fund they are defaulted into when they take up their first job.
So, for funds that don’t have a foothold in industries with high volumes of workforce entrants, the race is on to engage young people and encourage them to make proactive choices.
This flips the switch on the traditional approach to defaults, but it isn’t new - funds already actively market both MySuper and non-MySuper products to consumers making choices about their retirement savings. This means that MySuper is already part of the choice environment, in the sense that individuals might actively choose a MySuper product, or actively choose to stay in a product they are defaulted into.
This comes into clear focus when you consider the future of corporate super products. With predictions that the number of new entrants into the employer channel each year could reduce by 61%, both trustees and employers will need to think carefully about the role of these product offerings, whether they are sustainable in the new environment, and what it will mean for employees if these products can no longer be offered in their current form.
In many cases there are distinct advantages, like fee discounts or tailored insurance for high-risk workers, that may make these products a good choice for employees. But education and engagement will now be vital to helping workers understand whether entering their new employer’s fund is right for them - particularly since the ATO comparison tool won’t display details of insurance cover.
The broader question is whether the new default environment will help to create more, and more meaningful, engagement with super, and how that will play out in terms of choice and switching.
One of the key learnings from the early release of super initiative was that, once people were in MyGov and looking at their super, they were more likely to click around to look at their accounts, and even take proactive steps like consolidating their balances.
This provides some grounds for hope that providing information about their super to people more often, through the ATO comparison tool, will mean they are more likely to actively engage with their retirement savings. This would notionally provide more opportunities for funds to make their MySuper products visible to potential members - either through a ranking high enough that it can’t be missed, or by having sufficient name recognition that consumers specifically search them out.
Of course, the smaller fintech and disruptor funds are no strangers to actively working for their members. Unlike other choice products, their memberships are often younger and unlikely to be advised. Their members have made an active choice to align themselves (and their balances) with these brands.
However, given the new scrutiny of fund expenses and explicit “best financial interests” duty that will also be part of the Your Future, Your Super package, it seems there will be little margin for error when targeting potential members. Funds will need to have a clear idea of who their members are and who they are advertising to, lest APRA judge that the expense could not be justified. On a similar note, it wouldn’t be surprising to see more scrutiny of promotions and offers that entice individuals to join a fund for non-super rewards – particularly with new guidance on the Sole Purpose Test expected soon.
There’s a lot of variables at play and we don’t yet know how these reforms will reshape the superannuation system. What’s clear is that the way funds engage with members, and potential members, will need to change dramatically.
OPINION PIECE - by Jane Macnamara, Senior Policy Manager – Superannuation & Retirement Incomes