Superannuation and retirement product providers will need to adapt to growing demand to meet niche member needs, according to Bernard Salt, social commentator and managing director of the Demographics Group.
The thinking has come from a new report worked on by Mr Salt, along with the Demographics Group, ASFA and Challenger, which explores the impact of changing demographics and the pandemic for retirement planning in the decade ahead.
“Dealing with superannuation, you’re dealing with the largest collection of consumers in the Australian market, and when you think about it, one-size-fits-all is really an outdated approach,” Mr Salt said in an address to the ASFA conference on Friday.
Instead of producing one product as cheaply and efficiently as possible, super funds may have to copy the models of other markets, offering a broad range of options.
“To some extent, I think this might be the future for financial services, or especially for superannuation, that the market in the 2020s will expect nuanced and articulated and tailored services and products and management,” Mr Salt said.
“The idea of one-size-fits-all might be great for efficiencies, but it’s not where the market is, or where it’s going, has been, I would say, for quite some time.”
The solution could present itself through technology, Chris Drew, investment manager, public market at Catholic Super added.
“As an industry, we’ve lumped everyone into one bucket, and we’ve said this is what we think is best for you,” he said.
“What if we can use some technological and digital solutions to create much smaller cohorts, almost get down to a cohort of one, so we can begin to treat everybody as an individual. There’s a long way to go for that.
“You have to then start bringing in assets and considerations outside of super, so that’s why this digital solution is required. But I really think that’s something the industry needs to start looking at.”
A 33-year-old consumer who just wants to take money out of super to buy a house versus an 80-year-old who’s still working and still contributing have different needs and divergent perspectives on life and their finances, Mr Drew commented, which funds will need to cater to.
For Sally Evans, trustee director for REST, diversifying products will create opportunities for providers.
“There is a really big space for us to be bold and think about how we serve our retirement income customers differently and what members really do want today,” she said.
“We don’t really have to worry too much about the future, because we’ve got a population there today looking for something that actually talks to them.”
Ageing population moving funds towards cash flow negative
Mr Salt’s report also referred to the upcoming “baby bust”, where waves of Baby Boomers will be retiring each year, culminating in around 100,000 individuals retiring.
The pandemic has knocked the effect, however, as a lack of foreign students and immigrants are set to shape the workforce and more Baby Boomers choose to defer retirement.
Brnic Van Wyk, head of asset/liability management at QSuper, commented that he was struck by the “sheer magnitude and pace” of the shift towards a maturing population.
Until around 10 years ago, the net new growth in Australia’s population aged over 65 was about 40,000 to 50,000 people a year. The growth has now ballooned out to more than 120,000 people a year and is projected to continue at that rate for the next five to 10 years.
“Now this demographic wave, combined with the maturing system, broadly means that funds will start becoming cash flow negative. And this is natural for a mature pension system,” Mr Van Wyk said.
“In fact, there are a couple of funds in Australia, mature funds that are already cash flow negative. But it does mean that investment strategies will have to adapt to meet future cash flow requirements.”
The effect on asset allocation and portfolio construction could be profound for funds.
At the same time, during the retirement phase, consumers that are unaware of how long they will live and how much they can spend draw upon their interest accumulated rather than their savings.
“People need to start drawing on their capital; they can’t live on interest alone… what’s the point of saving for something and then actually not using your savings?” Mr Van Wyk said.
“So, fund communication and framing will shift away from returns to cash flows, and superannuation funds have an obligation to help the shift in culture from wealth accumulation to concepts such as asset drawdown, spending one’s savings and retirement income.”
