Author: Richard Webb, Policy Advisor Financial Planning and Superannuation, CPA Australia
Annual superannuation statements provide a point in time snapshot of the members’ accounts. They include information about fees paid, investment returns and a list of transactions on the account during the period.
Some trustees add a projected balance at retirement, others include graphs and charts illustrating asset allocation, investment returns and year-on-year balances. But it’s mostly static information and, dare I say it, uninteresting to all but a few.
With the wealth of data available to funds, why is this so? Arguably, periodic statements are structured this way to meet regulatory requirements and the historical expectations of fund members.
CPA Australia (and other organisations) have transitioned away from paper communications to members. This allows us to provide updates which can incorporate videos and other media. What if trustees didn’t issue member statements as a series of sequential data, but something more interactive?
One alternative could be an app offering members 'normal' statement data in additional to interactive options. The latter could be customised with the member's balance, investment options and contribution types, for example. The member could control their ‘view’ and tailor the app according to their preferences.
Once trustees start looking, they’re sure to find more opportunities to converge statements with other reporting tools, for example, retirement calculators.
Regulatory relief allows trustees to estimate what a balance might look like at retirement, in the form of a retirement estimate. Essentially, a retirement estimate is nothing more than a single scenario run through a retirement calculator.
Estimates must use a standardised rate of return (presently three per cent per annum), retirement age (67), insurance premiums and other assumptions. These criteria are generally inflexible but can be easily adjusted in the retirement calculator.
Retirement calculators play an important and complementary role to retirement estimates. Both provide an accessible starting point to users who are seeking to understand their financial position. Like estimates, retirement calculators are also subject to regulatory relief involving conditions.
Converging the two – retirement estimates and calculators – and building this functionality into an app-based statement would enable members to undertake a 'what-if' analysis of their retirement savings. This could import accurate information from the fund, such as fees, returns, insurance premiums and investment volatility, together with the member's own contributions and other personal information. Unlike generic calculators, the results would be more meaningful and hence valuable to the member.
One feature common to estimates and calculators is that the results could be construed as financial planning advice. It’s reasonably foreseeable that a message that a member would need to raise their contributions or change their investment options to meet their retirement savings target, could prompt action. The challenge for trustees is to protect against ill-advised action by members.
A solution (and an opportunity) for trustees is to make advice part of the interactive functionality, so that members can see how changes would affect them. Given the ease and availability of immediately relevant information, the member could explore different scenarios, changing the parameters multiple times in one sitting. 'One-off' advice could become 'ten-off' advice, as members change settings to see what is advisable and what isn't.
Of course, affordability of advice would be an issue, but robo-advice could provide a cost-effective work-around. A failsafe could be built into the app to ensure that members exploring multiple or more complex scenarios are prompted to seek more specialised or holistic advice services.
The different scenarios run by the member could be stored in the app for future reference. This would also give trustees a more comprehensive picture of their members' financial goals and needs.
Trustees should be alive to the opportunities that reimagining superannuation statements offers. Building an environment where the member controls their reporting needs requires convergence between static information, interactive functionality and personal advice. But it could just be the most important engagement exercise trustees have undertaken since compulsory superannuation began.
Trustees who provide member with interactive information will offer a more valuable service than those who don’t. They are likely to be rewarded with more engaged members.
CPA Australia provides some useful super fund checklists and templates for client letters
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