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Diversity by design: Why digital advice must underpin CIPR reform

There's a lot to be positive about the government's efforts to encourage the superannuation industry to offer sensible and compelling pension offers to retirees (known as CIPRs).

The industry has long struggled to get out of first gear to serve the changing needs of Australians as they get older. However, meaningful reform must be accompanied by a digital-first approach to guidance and advice if we want to see real change and positive outcomes for the next wave of retirees.

In the House of Representatives Standing Committee on Tax and Revenue's recent report on Tax Engagement, the committee acknowledged that engagement in the super system is "as important as is tax compliance for employees."

This is no empty statement. Given that individuals vary so much in retirement, we think it is best to view the Comprehensive Income Products for Retirement (CIPRs) as a flagship or benchmark default choice.

Trustees will play a critical role in engaging members and encouraging them to compare the CIPR solution with other options they may have. In the first instance, trustees can deploy straightforward decision trees to suggest which default may be most suitable for a member to consider.

But, guidance and advice to select the appropriate solution should be available at reasonable costs to all Australians via intra fund advice. Costs and quality delivery can be effectively managed through the intelligent application of digital and human capabilities.

While the CIPR policy is about making standardised defaults readily available as a benchmark, we should not forget Australian retirees are a diverse group and need personalised solutions to achieve the best possible outcomes for all super fund members.

To its credit, Treasury has managed to take on feedback from industry participants and have recognised the fact that one-size-fits-all approaches are limited in their scope and fall short of matching the complex and diverse needs of retirees.

Substantial progress has been made since Treasury first launched its CIPR consultation in December 2016. The introduction of the Retirement Income Covenant in this year's Federal Budget was an important step in the right direction and broadly well received at the time by myself and other industry participants.

It helped articulate a constructive framework for addressing three critical factors that have often be overlooked; namely member needs and preferences, expected eligibility for the Age Pension and cognitive decline.

However, I believe that 'one-size-fits-all' approaches have to be viewed sceptically and, instead, a more tailored and measured approach - driven by data insights and digital advice provisioning - is key to accounting for the changing needs of Australian retirees.

Any CIPR recommended by a trustee should take into account different Age Pension profiles. Older Australians are a very diverse group with different needs. They are influenced and subject to a number of variables including: total super balance in retirement, income expectations, life expectancies, aversion to risk and other sources of income and non-super wealth.

The fact is, under its current state Australia's accumulation-plan based retirement system places a tremendous burden on members to decide how to appropriately manage their retirement savings to achieve a desirable lifetime income.

This is where digital tools can help broaden the access to advice for the bulk of super members - which is just not possible under the cost structure and regulatory environment for traditional financial planning.

Digital advice provisioning is not a new phenomenon, but when used correctly can present trustees with the opportunity to engage with members from an early age, collecting data on member profiles, informing, guiding and coaching members on saving for retirement.

Digital advice offerings are starting to play a role in raising levels of engagement among fund members. However, Australian funds have lagged well behind US retirement plan sponsors in offering digital advice.

But, there are signs of growing traction, with 22% of Australians saying they are familiar with digital advice services according to figures from the 2018 Robo-advice Report from Investment Trends.

Digital platforms can help build financial literacy and also retain members, by guiding them through retirement and providing advice as circumstances change. Digital platforms can assist trustees in identifying the financial profiles and needs of members in retirement, and help with designing the MyRetirement product or CIPR for individual members.

Any successful reform in the domain of a retirement income covenant for older Australians must be met with a strong commitment by trustees to recognising the importance of digital advice for delivering this vision.

The onus is on us to help fund members and those disengaged with their super by providing them with easily accessible, personally appropriate solutions that meet their increasingly complex needs.

With effective reform, education and advancement in digital advice provisioning, there is no reason why we cannot help all Australians reach greater levels of comfort and dignity in retirement.

Written by Jeremy Duffield, co-founder and chair, SuperEd.

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