New report backs super nudges on retirement defaults

Allowing superannuation funds to suggest default retirement solutions to members justifies favourable consideration by policymakers, according to the Conexus Institute.

The Institute has released a new research report suggests that while allowing default suggestions would require the unwinding of some consumer protections, this might ultimately benefit superannuation fund members.

Dealing with the necessary regulatory changes that would need to be addressed by Government, the research paper said that superannuation funds would need to be enabled to suggest a potential retirement solution to members as a type of nudge or call to action.

“Enabling trustees to do so would require addressing the current constraints stemming from the anti-hawking regulations and the proposed limitation on referring to financial products under the targeted superannuation prompts component of the DBFO Tranche 2 reforms,” it said.

“While there are some issues with providing trustees with the ability to make suggestions outside of a financial advice process, we consider the benefit of moving many retirees into more appropriate solutions than otherwise would significantly outweighs the risk of a few retirees ending up in unsuitable solutions,” the research report said.

The authors of the report said they said they see three elements as fundamental to delivering retirement ‘defaults’ in an effective manner:

• Defaults should be ‘smarter’ rather than basic – The industry should be aspiring to deliver ‘smarter’ defaults that cater for differing member needs, for instance a suite of solutions designed for specific member types. Super funds can do better than single generic defaults. In particular, presenting an [Account Based Pension] ABP with minimum drawdowns as ‘the default’ would provide little uplift from the current state.
• Implementing for members – Super funds need to establish the capacity to deliver integrated ‘default’ solutions, and then only require members to push a proverbial ‘big green button’ to have a solution implemented for them. Currently the industry at large is not in the position to do so, which raises the spectre of implementation losses that dilute the benefit from ‘defaults’ if not addressed.
• Provide member protections – ‘Default’ retirement solutions and the manner in which they are offered should be carefully designed and framed to limit the risk of members ending up in a solution that is unsuitable for their needs.

Commenting on report, Conexus Institute executive director and co-author, David Bell said he believed the ability of funds to make suggestions to members is appropriate in a world where the Government has identified super funds as having an important role in helping many Australians into suitable retirement solutions,

“While there is a tension related to ensuring members are protected, this can be addressed through additional policy, regulatory and industry standards,” he said.

Co-author of the report, Geoff Warren noted that there are many different interpretations of defaults.

“There are many different interpretations of defaults. For industry to advocate for policy change to facilitate defaults they need to agree exactly what they are asking for. Our work aims to accelerate that discussion,” he said.