Unlocking the potential of super to support members for life

As more Australians move into the retirement phase of superannuation, they will need to make key decisions directly impacting their family’s quality of life in retirement.

Super funds, who have been active in supporting members throughout their working lives, now have an opportunity to strengthen their relationships with their members by helping them to navigate their way through retirement with the support of life insurers. While retirement in many cases is a reward for years of hard work, people face different risks both in the lead up to, and during retirement, compared to those risks in their working years. This is particularly true when it comes to managing the risk of outliving their savings, also known as longevity risk, and the increased risk of cognitive decline in later years.

Using the Retirement Income Covenant as a map for the industry

At last month’s ASFA Spotlight on Insurance conference I participated in a panel where we discussed how the Retirement Income Covenant (the Covenant) provides opportunities for funds and their insurers to demonstrate lifetime value to members through their super. However, this also brings a responsibility to ensure that what is delivered to members by way of product, member experience and trustee guidance is valuable, fair, and affordable.

I like to think about the Covenant as a map for the industry on how best to support members in retirement. The Covenant highlights certain hazards and landmarks that are important to help members navigate safely to ensure a better quality of retirement. The job therefore for trustees is to mitigate these risks for members, including by evolving their retirement product suite and empowering members to make better retirement decisions.

What’s the role of life insurers in all of this? Well, we can act as the compass, providing risk protection services and solutions that help trustees to steer members away from choppier waters to safely secure a smoother retirement journey. This is particularly important for longevity risk protection which can’t be managed through investment solutions alone.

Navigating the Covenant to deliver value, fairness and affordability

1 July 2022 is a milestone date for the industry not only because it represented super’s thirtieth birthday (since the superannuation guaranteed was introduced) but also with the Covenant coming into effect.

Its introduction will go a significant way to addressing pre-retirees’ and retirees’ main worry – with 56% of Australians expecting to not have enough money to last for the rest of their life¹. It does this by requiring trustees to implement a strategy for their members to help them balance the trade-offs they face in retirement between:

1. maximising their retirement income;
2. managing risks to the sustainability and stability of this income; and
3. retaining some flexibility in how they access their savings.

Super funds are well placed to help members achieve competitive investment returns in retirement through existing account-based pension products. However, the second objective of the Covenant in particular, will require careful consideration to innovate, partner and evolve their retirement propositions to help members enjoy their best lifestyle in retirement.

This is where insurers can help by evolving their protection propositions and benefit designs to recognise the different risks that members face in retirement.

Partnering to provide confidence and certainty to members

There are three key areas where insurers have unique capabilities and solutions to support trustees in executing their retirement income roadmap to improve members’ quality of life in retirement:

• Life risk expertise: Insurers need to continue to provide quality and affordable life risk protection solutions (notably disability income insurance) to help members that stop working earlier than they expect. With almost 1 in 2 members retiring earlier than they expect ², the claims we pay to eligible members are essential to help them bridge the gap until they’re eligible for the age pension or can fully access their retirement savings.
• Lifetime income (Living risk) solutions: Longevity protection solutions often require specialist knowledge of mortality risk pooling and balance sheet capacity to offer sustainable propositions to different member cohorts. Australian-regulated life insurers are well equipped to support super funds in offering lifetime income products that give members the confidence to spend, by protecting them against the risk of outliving their savings. This is particularly important when you consider that the average couple retiring today have more than a 50% chance of at least one person living past 90³.
• Health services: Equally, insurers have deep expertise in health services which provides trustees with opportunities to consider both financial and non-financial risks to retirement income, most notably cognitive decline. Dementia including Alzheimer’s disease is now the leading cause of death in females and the second leading cause of death in all Australians⁴. This risk is particularly brought into focus when members join products which they are expected to remain in for the rest of their life.

Realising the promise of super for all Australians

In recent years, the significant regulatory change our industry has witnessed has challenged the purpose of superannuation. Ultimately, I believe the common goal we should all work towards is to provide dignity in retirement for all Australians.

Realising the promise of super – or maximising lifetime value for members – therefore requires us to turn our minds to the needs and quality of life that will be experienced by Australians from all walks of life (not just the average retiree). This includes retirees from blue collar occupations, those suffering from permanent or temporary disabilities, and those who may one day face cognitive decline, in addition to the retirees’ spouse and family unit.

While retirement income strategies will vary across funds according to their membership, internal capabilities, and resourcing, they will be most successful when supported by partnering with organisations with the appropriate expertise, agility and scale. The importance of scale not only provides consistency in experience, but unlocks additional services and support including data, insights, experience design, digital and health.

With life insurers and super funds already working closely together across group insurance arrangements, there’s an opportunity for us to build on this work and, with the right strategy, help Australians experience calm waters and a smooth journey throughout their retirement.

Please reach out to your Client Manager if you want to learn more about how TAL can support your fund to meet your Covenant obligations while also improving member outcomes and supporting your growth.

Sources:

¹ Retirement income during COVID-19, Australian National University: https://csrm.cass.anu.edu.au/sites/default/files/docs/2021/5/Retirement_income_Paper.pdf

² Retirement Income Review Report: https://treasury.gov.au/sites/default/files/2021-02/p2020-100554-udcomplete-report.pdf

³ Australian Bureau of Statistics: https://www.abs.gov.au/statistics/people/population/life-tables/latest-release

⁴ Australian Institute of Health & Welfare: https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/leading-causes-of-death