The membership struggle in the age of stapling

Super funds are likely to have to maintain a delicate balance of guarding their own members while simultaneously seeking to attract those from rival funds in the age of stapling, according to a KPMG report. 

The firm’s report ‘The seven drivers of the 2023 inflection point for retirement incomes’ explored the impact of the stapling regime that came into force in November 2021. 

This means new members could now choose their own fund rather than being defaulted into one by their employer. 

KPMG posited this could lead to funds opting to “guard their own high value members” in order to survive and grow in a world of increased super consolidation.

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“Members are now able to leave and join super funds more easily, and over time this will lead to a more mobile membership base,” KPMG said. 

“Super funds with an eye towards size, scale and sustainability (with a big focus on this from APRA) will guard their own high-value members while also trying to attract members from other super funds. In this environment, retaining members transitioning to retirement is imperative for survival.”

Those funds that are winners would be those that facilitate the ongoing role of the super fund across the value chain rather than offering external solutions, KPMG said. 

They would also be those funds that offer attractive retirement income products to ensure members stay with the fund post-retirement and into the decumulation stage.

Under the Retirement Income Covenant (RIC), trustees are now required to balance and achieve three objectives for beneficiaries in maximising their expected retirement income, managing expected risks to the sustainability and stability of their expected retirement income and having flexible access to funds during retirement. 

“APRA has made clear that developing a strategy is just the beginning and they will expect trustees to continue to enhance their offerings and strategies in coming years,” KPMG said. 

“KPMG expects that within three years this will lead to super funds across the industry offering strategies and products that assist members to manage longevity risk. Super fund trustees (including platforms) are already responding via enhancing their own offers and/or partnering with third parties to explore potential strategies and products.”

Account-based pensions are currently the most popular option for retirement income as they offer flexibility and full capital access as well as access to high-return growth investments. On the other hand, lifetime annuities are less popular as super fund members are reluctant to trade flexibility for a lifetime income.

In a bid to attract more customers, flexible products are being designed that could work alongside an account-based pension or embedded as an investment option. These could provide the certainty of a guaranteed income with the flexibility to adjust to changing circumstances and fit into existing industry systems.

Recent changes made by providers include clearly disclosed unbundled fees, greater investment choice, income choices, and early commencement ahead of retirement. 

“What hasn’t changed from the traditional products is the income guarantee which provides surety for Australians to retire with confidence. Many of these new products are backed by life companies, meaning the statutory reserves needed to fund income payments into the future have been set aside and the promises made to super fund members today will still be legally binding in 30 years’ time,” KPMG said. 

“KPMG predicts that this new style of longevity product will become a retirement income anchor. Rather than being an add-on, we think advisers and members will select the longevity protection product as a central part of a holistic and optimal retirement income strategy, locking in a certain income on top of the Age Pension.”