After a year of economic challenges, Australians who used their superannuation savings to support their financial health during the COVID-19 pandemic are now at increased risk of retiring with an insufficient nest egg to support their retirement.

The retirement gap—a measure of the collective scale of retirement underfunding—has surely widened following the global health pandemic, as savers called on their retirement nest egg to help ease the burden of the pandemic’s economic impact.

Industry data has revealed that Australians took $36 billion from their super through the Early Release Scheme (ERS). For other Australians, income was interrupted by temporary job losses, and while there were supportive initiatives such as JobKeeper and JobSeeker, any pause in regular Superannuation Guarantee payments also meant a pause in contributions to super balances.

Russell Investments pre-COVID research (Making Super Personal white paper) of more than 8,000 Australian superannuants found well over half (64 percent) are projected to fall short of their desired retirement income by at least 10 percent.

The problems in Australia’s retirement saving landscape are exacerbated for Australians who dipped into their super savings to cope with the pandemic. While many have argued the pros and cons of the ERS, as the world settles into its new normal, the ultimate objective must return to focus: to achieve adequate funding for each individual’s lifestyle needs and wants in retirement.

Like any goal-driven investor, they face two key factors – how much to contribute, and a strategy for how to invest those accumulated contributions. Solving for these two factors remain significant challenges for members, and funds should guide their members to reach these twin goals. With a significant portion of Australians still facing a personal retirement gap, the system must urgently address these fundamental issues.

The solution to this issue requires a personalised, goals-based approach to super that engages the member in their retirement saving journey. Particularly for members who accessed their super through the ERS, the system’s tendency to make common assumptions across members might not do enough to help get them on track for their retirement goal.

Goal setting and engagement

Assessing how much money each member needs to contribute to their super and when is dependent on each individual’s personal circumstances and, importantly, their goal – the amount of annual income they aim to retire with. However, to really help members set and achieve this goal requires their engagement.

Many Australians view retirement as a distant financial problem, outweighed by more immediate needs. While the industry recognises that many Australians are disengaged from their super, research shows the reality to be more complex.

Goal setting and goal tracking can have a transformational impact on engagement, by focusing individuals on the retirement lifestyle each would like to achieve, rather than complex investment decisions. Such an approach makes super significantly simpler and much more engaging.

By helping members with goal setting, superannuation funds can also guide and keep them on course through fluctuating markets. Anchoring super in how members are tracking to a personalised, long term goal, rather than leaving them to focus on short term market fluctuations can help members remain engaged and committed. In the case of COVID-19, goal tracking may have assisted some members to stay the course, instead of crystallising their losses by increasing their allocation to cash as equity markets suffered during the initial lockdown phases.

Towards mass personalisation

Despite the variety of options for Australians to invest their super in, most stay with the superannuation fund —and investment option—they defaulted into through their workplace. Asset allocation can drive 85 percent of the investment return, and here the default strategy may not be the best for each individual’s unique situation.

Most default funds apply a single asset allocation to all members or within age-based cohorts, which fails to recognise other personal information that could improve asset allocation, including account balance, any other assets a member owns which could fund their retirement, contributions, and of course, the individual’s retirement income goal.

As we progress through this decade, superannuation funds will increasingly follow the lead of Russell Investments Master Trust and adopt a mass personalised approach to deliver individually appropriate investment strategies for each member based on their funded status. Mass personalised strategies consider a multitude of individual member data points such as age, super balance across various accounts, salary, the member’s desired retirement age and level of income, and contribution rate, among others to determine each member’s funded status, or how they are tracking towards their unique retirement income goal.

The result allows funds to optimise a customised asset allocation and glide path for each member to ensure they have the best chance of reaching their goal. Russell Investments analysis shows that by eliminating the compromises of one-size-fits-all asset allocation approaches, more than two thirds of members could have higher projected retirement incomes, with some incomes increasing by more than 30 per cent.

For funds considering how to re-engage members struggling to re-build their retirement savings in the wake of COVID-19, mass personalisation and a goals-based approach to superannuation deserve serious examination.