Super funds missing the mark on pre-retiree income preferences

Four in five Australian pre-retirees don’t feel prepared for retirement, according to the latest data from Capital Preferences supported by Challenger.

The data highlighted that while as many as 78 per cent of individuals aren’t certain about their retirement preparedness, retirement income preferences are highly individualised and data currently held by funds may be misleading.

As such, Capital Preferences questioned the process funds follow and the data they rely on to build retirement income strategies.

For example, while the top two factors associated with a greater sense of retirement preparedness were home and guaranteed lifetime income product (GLI) ownership, according to a Capital Preferences’ survey, two-thirds of those under the age of 65 have no knowledge of GLIs while only 8 per cent of those 55 and older identified themselves as knowledgeable.

Importantly, the research identified that over $145 billion of the super held by 55–74 year-old Australians should be transferred into a GLI to meet their preferences for long-term income certainty.

Shachar Kariv, the co-founder and chief scientist at Capital Preferences, explained that the research points to the need to go beyond demographic data and seek more certainty in order to ensure Aussies are retiring in their preferred way.

“Our findings highlight the importance of recovering individual preferences as part of the member experience. Simply relying on demographic data to predict income certainty preferences will almost certainly misdiagnose members – and hinder super funds in providing fit-for-purpose retirement income assistance,” Kariv said.  

“Digital and scientific innovation can play a significant role in solving this potential issue, allowing super funds to recover essential information on their members.”

Kariv further emphasised that member preferences are best reflected in their decision making.

“Members can’t self-report their preferences in areas of risk, but they can show us with their decision making,” he said.

Challenger customer chief executive Mandy Mannix agreed that super funds can better support their members with fit-for-purpose assistance through personalised and scalable technologies.

“Data reinforces the importance of financial security in retirement – as Australians are living longer and retiring in record numbers, it’s critical that as an industry we understand and respond to retirees’ preferences to ensure they have confidence to spend,” Mannix said.

“It’s exciting to see momentum building in digital innovations and the meaningful role they can play to support super funds, advisers and government in solving the retirement income puzzle.”

As such, she highlighted the importance of both government and industry playing an active role in ensuring that Australians “make the most of their superannuation throughout their lives.”