The recent warning by the regulation authority that superannuation fund trustees should provide concrete evidence they understand their members’ needs has proved that there is a huge gap in understanding actual retirement needs, according to Milliman.
In an analysis, Milliman cited Australian Prudential Regulation Authority (APRA) deputy chair, Helen Rowell’s statement that it was not clear how trustees were making their judgements and how they were translating them into the real assessment.
“And that’s where we see the gap,” she said. “...but we’re not seeing the concrete evidence of how trustees are turning their minds to that and translating that into an objective assessment.”
Milliman said that in the light of new draft legislation aimed at giving Australians more power over their retirement savings, meeting members’ needs would require more than strong investment returns but would also need to consider the nature and quality of the benefits and services being provided.
Furthermore, super funds would need to incorporate the quantitative and qualitative criteria into their business plan to demonstrate they understand and are able to meet the needs of members.
According to Milliman, there were still data gaps to be filled in about how members were behaving and what they needed.
“Funds with more accurate information about the behaviour of retirees can also create better products,” the firm said. “The industry is littered with retirement income products that have never attracted significant inflows because they were based on incorrect assumptions about member behaviour.”
Milliman's Retirement Expectations and Spending Profiles (ESP) big data service said that accurate big data combined with analysis could help discern the differences between members’ stated preferences and revealed preferences.
“We are now in an era where it is commonplace for organisations to deeply understand customer behaviour – companies such as Facebook, Google and Amazon have been built on this ethos,” it said. “APRA is demanding that super funds also understand their member behaviour at a more fundamental level and funds which ignore that advice will do so at their own peril.”