Default pension could leave retirees worse off: Aware Super

“Any default is only planning for that one individual and not planning for that household. For example, are there dependents to be catered to as part of that retirement plan, what are the lump sum plans someone has carried their whole career?” she said.

“There’s uniqueness in members’ circumstances, and any default answer is ignoring those nuances that can be really quite important.”

Super funds are required to help their customers plan for their retirement as part of their legal obligations under the Retirement Income Covenant but, according to the corporate and prudential watchdogs, are so far failing to do so. Meeting this obligation requires a level of customer service, data analytics and product development that industry funds have not yet achieved.

While AustralianSuper has invested comparatively little in advice, Aware Super has a large financial advice business.

But the nation’s leading retirement actuary said that while industry superannuation funds grew “lazy” on the back of guaranteed inflows from workplace agreements, they should still be given the chance to automatically move disengaged customers into pension accounts.

Michael Rice, who sold his superannuation advisory business Rice Warner to Deloitte in 2021, said enormous guaranteed inflows from workers “defaulted” into some industry funds upon entering the workforce meant they had spent little time or money on developing retirement income solutions and advice.

“It’s a combination of it being new for them and that they are lazy, complacent because the money flows in anyway,” he said.

The form a default system would take – if it is even adopted – is still under consultation, but it might be that once a customer reaches a certain age and stops receiving employer contributions for several months, their money is automatically rolled into a retirement income account.

Open mind

Mr Rice said defaulting cohorts of retirees with like circumstances was an idea worth considering.

“AustralianSuper has a very large number of members with low balances at retirement who will get a full age pension so they can more easily recognise a default group of members,” he said.

“Other funds don’t know whether their members are married, they don’t know whether they are homeowners and without that basic information they’re not a position to group members appropriately.

“That is why some super funds see financial advice as critical because it is the only way of getting that data.”

Ms Forman conceded that there may be some advantages to a hard default system for customers were who showed “complete apathy” towards their super, but that it was on funds to “break through” some of that indifference and engage them.

“That’s the harder proposition … but the onus should be on the trustee to stimulate the member to make that choice.”