The 2020 – 21 Federal Budget was extremely unusual. In sheer size and scope it was truly ‘unprecedented’, to use the already tired vernacular of ‘these uncertain times’. Even Treasurer Josh Frydenberg’s speech was longer than usual. In one way, however, it was typical of an Australian federal budget — in that it contained changes to the superannuation system. We take a look at those changes and what they might mean for innovation in the industry.
From July 2021, the government’s Your Future, Your Super package will see:
Members will find themselves ‘stapled’ to their accounts, with their account following them as they change jobs and employers. Currently, new accounts are often automatically created for members when they change job, resulting in multiple accounts.
- A new comparison tool
The government is launching an online comparison tool called YourSuper aimed at making it easier for members to compare and choose between funds. The hope is that this will create a more robust and competitive market in the superannuation industry.
An increased focus on underperformance
APRA will conduct an annual performance test, assessing the net investment performance of MySuper products. This will be expanded to include non-MySuper products from 1 July 2022. Funds will be required to disclose underperformance to members, and funds that underperform over two consecutive years will be prohibited from accepting new members.
Also notable — if only in light of the public protestations of former prime ministers Keating and Rudd— was the absence of an increase to the superannuation guarantee.
What does the budget mean for innovation in superannuation?
Stapling and the retention/acquisition wars
The ‘stapling’ announcement doesn’t so much transform the battlefield for funds as it slightly alters the rules of engagement.
Super funds have been talking about increasing member engagement for a long time now. The ideal for funds looks something like this: the engaged member takes notice of their superannuation and consolidates their multiple accounts (36% of us have them) with the one fund. The engaged member makes the effort to take their fund with them when they change jobs. Eventually all this engagement leads to a positive lifelong relationship, and when it comes time for the engaged member to retire, they roll their accumulated balance into one of the fund’s retirement products. Engagement with an eye to retention is therefore one way in which funds increase — or at the very least maintain — funds under management (FUM).
The other strategy for increasing FUM is acquisition. Here, rather than engaging their own members, funds are looking to engage the members of other funds and convince them that the grass is greener on their side.
As with customer acquisition and retention across the economy, the smart money in these spaces is investing big in data. All these people we’re trying to engage? We need to know what makes them tick.
On the retention side, funds benefit from doing as much as possible with the data that they have on customers. How are members using the website? The member portal? Do they prefer email communications? Phone calls? Snail mail? Are people like them interested in advice? Are people like them likely to roll-out? Do they like rhetorical questions? Some funds are already leveraging machine learning and artificial intelligence to answer questions like these, and optimising their engagement strategies accordingly.
Acquisition presents a similar opportunity. Here the key is identifying the paths that lead prospective members to joining the fund, and optimising marketing spend to target the most effective channels. Data-driven marketing attribution models have long been used in other industries, and are now becoming commonplace in superannuation.
The stapling of member accounts will benefit a handful of funds with high numbers of first-time accounts. Rest and HostPlus, who service the retail and hospitality sectors respectively, account for nearly half of these. For the rest of the sector, acquisition of new members just got harder — and more dependent on the member making a conscious decision to switch funds. For these funds, taking a data-driven approach to marketing could be the difference between a competitive edge and a permanent slump in member acquisitions.
Compare the pair
Continuing the thread of member engagement is the budget’s proposed YourSuper comparison tool. As mentioned earlier, the government hopes that by introducing YourSuper, they can increase the number of members switching funds, thereby increasing competitive pressures on funds.
As yet there’s been scant detail around how exactly this tool will work, but we assume there will be a requirement on funds to provide data to power it. This called to mind Assistant Minister for Superannuation Jane Hume’s reiteration last month that the Consumer Data Right (CDR) will be extended to superannuation.
For funds these developments will mean making more data available, some of it in real time via APIs. This in turn will require good data governance and data management. Funds will need to ensure — as they should do anyway for countless other reasons, not least compliance with APRA CPS 234 and CPG 235 — that they have appropriate organisational frameworks, policies, standards, processes and systems in place to manage data appropriately.
APRA will be placing an increased focus on underperforming funds. Those that fail to meet performance benchmarks will be compelled to disclose this to their members, and funds that fail benchmarks two years in a row will be prevented from accepting new members altogether. Crucially, APRA’s benchmarking will assess net performance, so not only are funds further incentivised to pursue investment performance, they will also be driven to keep costs low.
The focus on performance should spur increased interest in ‘investtech’ — investment technology. The superannuation industry goes through alternating trends of in-housing and outsourcing investment management, but invariably trustees need oversight over a variety of investments managed by a number of different parties. Solutions that allow central oversight and management of these arrangements would be welcome innovations.
This extra pressure on costs adds to the multitude of reasons for funds to seek to keep fees low. Members are increasingly aware of the importance of fees, and with this new APRA benchmarking, the YourSuper comparison tool, and the prospect of Open Superannuation as part of the CDR, funds will have nowhere to hide high costs.
So passes another budget, and another bunch of changes to the settings of the superannuation system. If these measures have the impact that the government desires, funds will be facing more competition than ever before. As is the case with much of the modern economy, those that innovate will reap the benefits, and those that fail to will fade into obscurity.
Kevin Fernandez leads the consulting business at Novigi, and is based in the Melbourne office.
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