Super Funds, Advertising and Employers

The introduction of stapling in 2021 changed the economics of employer default arrangements for superannuation funds. Funds could previously rely on a steady stream of new employees failing to nominate a super fund and automatically opening an account with their employer’s default. Since stapling came into effect, this is no longer the case, so funds have been experimenting with new ways to acquire and retain members.

Treasury released the latest draft of the Payday Super legislation in March. It contains rules governing how superannuation products can be advertised during employee onboarding, and when an employer can request details about an employee’s stapled fund. Given that the rules and restrictions are now being clarified, we’ve been contemplating which strategies super funds are likely to adopt to drive acquisition and retention through the employer distribution channel.

We think the following strategies are likely to become increasingly prevalent:

• • Advertising to employers to win new default arrangements.
  • Advertising to employees in the onboarding process to win new members and retain existing members.

Winning new defaults

Though the employer default relationship is perhaps not as valuable as it once was, funds still stand to benefit from being the default fund for as many employers as possible.

To win defaults, funds need to be clear on their value proposition to employers. The core of this is a fund’s proposition to members — overall performance, fees and value for money, member experience and support, and — in the wake of regulatory direction — things like financial advice and retirement products. But increasingly, employers also expect direct benefits from their superannuation providers, including streamlined administrative processes, reduced operational overhead, and improved compliance support. This has seen funds providing employers with software to perform functions including superannuation clearing house, payroll and employee onboarding. Demonstrating alignment with employer values — by meeting ESG criteria, for example — can also help to differentiate funds.

For funds who can clearly articulate their employer value proposition, the challenge is then to get this in front of employers at key decision points. We anticipate that super funds will broaden their collaboration with payroll and HR software providers to display information to employers at the point they nominate a default fund.

While we’d like to think that employers do thorough research before deciding on a default super fund, it seems unlikely that this is always the case. Payroll and HR systems generally have a screen through which employers nominate a default fund. Information about funds and their employer value propositions could be displayed here — software providers could even build workflows to lead employers through the process of selecting a default fund.

Advertising in employee onboarding

The draft Payday Super legislation proposes a ban on advertising certain superannuation products to employees during the employee onboarding process. However, it explicitly carves out exceptions in which this kind of advertising is permitted, namely where the product being advertised is:

• • The employer’s default fund.
  • A MySuper product that has not failed APRA’s performance test.

Though the new law is positioned as a ban, we think the clarity provided here on what type of advertising is allowed will lead to more advertising during the employee onboarding process. The vast majority of APRA regulated funds will have an eligible MySuper product that they can advertise under these new rules, and we expect to see many of them do just that.

The legislation also changes the rules that govern when employers can request the details of an employee’s stapled fund. Currently, an employer can only query the ATO to find and show an employee their stapled fund after that employee has failed to elect a super fund. Under the new law, employers will be able — but not required — to retrieve the employee’s stapled fund and show it to them prior to the employee making a choice of fund.

We think these changes will result in payroll and HR system workflows in which a user is presented with:

• • Their stapled fund
• • Their employer’s default fund
• • A range of promoted funds.

Several software vendors already do this, including SuperAPI, Employment Hero and MYOB (including FlareHR, which is now fully owned by MOYB).

Commercial models and unintended consequences

The commercial models that underpin the partnerships between superannuation funds and payroll and HR software vendors are interesting, not least from a regulatory perspective. Funds might pay merely to have their products displayed, to be displayed preferentially, or only when a member is acquired or retained or an employer selects the fund as their default.

There is a risk that this advertising leads to zero-sum churn, in which a majority of funds pay to advertise through these new channels, net member flows are broadly static despite significant switching between funds, and the only real consequence is higher costs to members. This criticism could of course be levelled against any form of advertising that funds engage in. It could be argued that if employer distribution spend replaces less efficient and less targeted mass-market advertising spend, this might lead to a better outcome for members — but this will depend on the approach taken by funds.

The current form of the legislation also leaves the door open for payroll and HR software providers to promote funds to employees without displaying their stapled fund or their employer’s default. We would not be surprised if regulation was introduced to prevent this happening.

Despite the potential for abuse, we remain optimistic that the superannuation industry will leverage the employer distribution channel in the best interests of members. Funds, software vendors and regulators will need to chart a course that avoids perverse incentives and misleading conduct. If they do that, they might just increase the proportion of member who are well-informed and actively choose their fund. That would be a great outcome for the industry.

Super Funds, Advertising, and Employers is part of The Quarterly – Q3 FY25

The production of our quarterly report is led by Novigi’s Market Strategy and Propositions team: 

This article was also strengthened by a wider group of Novigi specialists, whose withering years of toil and rich experience added depth and clarity to the perspectives shared. 

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