Ash Priest, Managing Partner at Novigi, recently chaired an innovation discussion group on behalf of the Association of Superannuation Funds Australia (ASFA) about the impacts of COVID-19 on the superannuation industry and the ways in which the pandemic has stimulated an increased focus on innovation. Thirty or so thought-leaders and decision-makers from the superannuation industry came together to discuss the challenges their organisations face, and the impact the pandemic is having on innovation.
How does innovation currently happen in superannuation?
Despite what some in the industry might say, the superannuation industry is innovative, and it should allow itself to take more pride in that fact.
Innovation is commonly mischaracterised. The Oxford English dictionary defines innovation as “[t]o make changes in something established, especially by introducing new methods, ideas, or products.” When we talk about innovation, we are talking about more than just rolling out new software or revamping business processes. Innovation — done right — embraces creativity and originality in an attempt to address a problem or exploit an opportunity.
Given this, we argue that superannuation is, in fact, quite innovative. In recent years there have been a number of significant innovations in the industry: SuperStream, the introduction of a wide range of new retirement products, as well as numerous instances of digitisation of the member interface.
And the industry continues to innovate. There are many examples of collaboration between service providers and funds that are seeking to improve the efficiency and effectiveness of administration, member interfaces and outcomes. Granted, superannuation is rarely (if ever) at the bleeding edge of technical innovation, but it is not clear that it needs to be, or even should be.
So why isn’t the superannuation industry more comfortable with describing itself as innovative? One possible explanation is a perception among funds that innovation means risk and that risk is necessarily bad. Another is that the incremental nature of innovation is not well understood. Whatever the reason, there’s a strong case to be made that funds should embrace the current wave of innovation and ensure that it continues to be prioritised. They should not shy away from taking pride in innovation, and put in place the business models required to facilitate and control it.
Why should super funds continue to innovate?
Trends affecting the industry include rising operating costs, regulatory changes, increased focus on member engagement, and advances in technology. Innovation is a necessary response to these trends for funds to remain competitive, improve operational efficiencies, and increase member acquisition and retention.
A 2019 survey by IQ Group of the top 50 superannuation funds found that — although all of the surveyed funds have a website and 98% of funds provide members access to their accounts online — only 48% of funds provide a mobile app for members. IQ group also surveyed members from a variety of super funds, who reported that they usually used laptops or desktops for more complex tasks relating to superannuation as their funds website was unsuited to mobile browsers.
Traditionally superannuation funds have been primarily compelled to innovate as a result of external forces. Regulation has historically been among the most, if not the most, significant drivers of change. Recently, another external force — a global pandemic — has highlighted opportunities for superannuation funds to place a greater focus on innovation.
Why are they not currently innovating?
Funds have an obligation to act in the best interests of their members. As stated previously, the perception that innovation means risk and that risk is necessarily bad likely stifles investment in innovation programs.
Many funds rely on legacy systems. This often reduces funds’ ability to take advantage of technological innovations. Upgrading or replacing long standing core systems is expensive and presents its own risks, leaving many funds more likely to remain set in their ways.
Stephen Huppert of Optimum Pensions suggests that we talk a lot about legacy systems but should talk more about ‘legacy thinking’. Huppert sees innovation as not “only about technology but, more importantly, about business model and approach.” Start-up superannuation funds in particular are exploring new ways to engage with members. Alternative approaches abound, such as focusing on particular investment strategies (e.g. sustainable investments, tech companies), or specific demographics (e.g. millennials, the self-employed). Instead of casting aspersions on them, funds should instead engage with these new entrants and examine the what and why of their models.
Outsourcing functions such as administration and advice can also make innovation difficult. When third party providers own core systems, making changes to those systems can become more difficult. Jonathan Steffanoni and Michael Quinn of QMV Solutions explored some innovative alternatives to administration operating models in our June Discussion Group.
It’s also important to note that “doing innovation” well requires a certain organisational capability. Lee Scales, Chief Customer Officer at UniSuper, comments that innovation necessitates ongoing development of culture and human capital, as well as continuous refinement of the use of tools and associated processes.
What has the impact of the pandemic been on innovation?
The superannuation industry has been at the forefront of the Australian government’s pandemic response, with the ATO expanding the criteria under which members are eligible for early release of funds. The Australian Prudential Regulation Authority (APRA) has reported that as of 3 May 2020, 117 superannuation funds have handed out $6.3 billion in funds to 1,080,000 applicants — an average of $7,629 per member.
Superannuation funds have had to quickly implement and invest in digital infrastructure as we have moved to a remote working operational model as part of social distancing requirements. Those with more modern technology infrastructure have been better able to respond to the challenges of the pandemic. We have also seen a correlation between these more advanced funds being able to meet the early release deadlines.
In a previous ASFA Discussion Group in which it was mentioned that some funds do not provide staff laptops. Cora Speed of Sargon raised the question of how those funds might be faring compared to others with established technology infrastructure that enables flexibility of working arrangements. Other fund representatives observed these issues within their own funds, and that digital transformation initiatives that had previously been on hold had suddenly been prioritised.
What do we expect to see next?
The pandemic has provided super funds with a number of innovation opportunities and problems to overcome. Innovation is expected to be a higher priority for funds going forward, in areas such as digital transformation and remote working capabilities, fraud and identity issues, and as an overall shift in attitude and culture.
The pandemic has forced organisations to rapidly embrace remote working, leading to many superannuation funds to quickly adopt new technology and ways of operating. Now that funds have the technology and working models in place to allow their teams to function remotely, will they continue to do so? Many now predict remote working becoming commonplace in the superannuation industry. Scott Kendall, Product Lead at Bravura Solutions, comments that online meetings work well for teams that are already tight knit, but challenges lie in developing and maintaining teams where one or more members are working remotely. Optimising and coordinating physical time with the team when at the office will be key; by scheduling ‘’in office’’ days, for example.
The pandemic has also highlighted the challenges of interoperability, and opportunities presented by cloud computing. Scalability, availability, and ease of integration have been important in allowing staff the ability to access business systems from home. Funds have historically been wary of the cloud, with data sovereignty issues associated with hosting member data on cloud infrastructure causing particular anxiety. These issues have largely been resolved — from a legal and regulatory standpoint at least — with the COVIDSafe app demonstrating the government’s comfort in hosting sensitive data on Australian citizens with AWS.
It was widely acknowledged throughout the ASFA Discussion Group that legacy systems have failed during this pandemic, particularly in areas such as member engagement and communications. One approach to manage legacy systems is to adopt a two speed architecture, characterised by what McKinsey refer to as a “fast-speed, customer-centric front end running alongside a slow-speed, transaction-focused legacy back end”. This concept allows enterprises to continue their core functions while keeping up with increasing digital demands — gradually migrating legacy components to more modern systems.
The government’s early access superannuation scheme has fallen victim to fraud and identity theft through the ATO. There are a number of ways that have been suggested to combat fraud in this situation such as identity solutions based on blockchain and similar technologies, and implementing fraud detection using artificial intelligence and machine learning. The latter needs high-quality, usable data in order to be viable.
Innovation, research & development
The transformations that have occurred as part of the world’s response to the pandemic have given superannuation funds permission — so to speak — to explore different approaches and commit to greater research and development.
Some funds are beginning to look at innovation by performing data science experiments. These could be further developed and expanded by establishing ‘’innovation labs’’ to investigate whether value exists for the organisation as a whole. This sort of approach has been adopted successfully in many other corporate environments. Collective Campus noted in their report “Top 7 Innovation Labs in Australia,” organisations such as CommBank, Telstra and KPMG are currently running successful innovations labs. In 2018, NAB almost doubled its investment in its own innovation lab workforce as the resulting enhancement of customer experience is priceless. With the pandemic shifting attitudes towards innovation within the superannuation industry, we expect to see an increase in research and development as funds follow suit.
Ash Priest is the Managing Partner at Novigi
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