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You will hear many times during this conference about a very new world we are transitioning to. Indeed we set as pre-reading for all our speakers and chairs the CSIRO report – “Our Future World” which Geoffrey Robertson referred to this morning. This report looks at 6 global megatrends that will change the way we live as they frame the environment beyond the horizon.
We need to think about how we will respond to these trends and how we will continue to meet the needs of all of our stakeholders.
Putting this into context. We know that with the growing size and scale of not only the Australian superannuation industry but pension funds globally – no longer do we ‘fly under the radar’. We now have the ability to shift and shape economies and communities. With this power comes higher expectations and greater scrutiny. I am not saying that we should be saving the world but I am saying that expectations of our many stakeholders are changing.
Broadly we have three levels of stakeholders: Policy makers, the general community and individual fund members. Each has different expectations being driven out of the current and future environment:
- Let me turn first policy makers. Across the globe they are asking questions on how efficiently we apply capital, drive the economy and our ability to deliver on our promises over the long-term – case in point, the Financial System Inquiry. Part of this conversation is also the notion of long-term investing: what it really means and how regulatory frameworks can be developed to ensure it occurs at minimum cost and risk to the end consumer.
- Our second stakeholder is the broader community. The community is starting to ask about, how we are delivering on the ‘public good’, (impact investing has already been mentioned today), whether we are transparent and the value we deliver particularly given that the system is compulsory.
- The third group of stakeholders, and for many in this room the most important, are the individual members in our funds. They are looking closely at what we charge and how well we deliver the right outcomes and service to meet their individual needs.
I will leave this third stakeholder to Professor Robert Merton our next speaker but I will touch on the first two.
Fundamentally, for us to be able to respond to the expectations of any stakeholder we must first earn trust. This is core of what I want you take away today – how can we build that trust.
This issue has become so important because there are elements present in the environment we operate in today that were not there 10 years ago. And if we want to effectively deliver on our members’ needs, then we need understand what is driving our stakeholder’s expectations.
So what are these elements?
- We have ageing populations and a shift in societal beliefs about whose responsibility it is to look after the old. Governments cannot afford to fully fund retirees and as such their reliance on the private industry is increasing. We have a shared goal of wanting to manage the risks posed by this shift and drive the best outcomes for the Australian community. However, the less trust they have in us, the more they will seek to manage.
- Communities and individuals now communicate on a grand scale through social media this means they have a real ability to influence reputation, thinking and behaviours.
- The growing size and scale of pension funds means they not only have a significant role in local economies but more and more in the global economy. It is no accident that infrastructure investment and the need to attract asset owners is on the agenda for the G20. The less trust in us, the higher the risk of directed investment.
- Finally governments of the day are starting to realise that to actually implement sound long term public policy in relation to pensions they need to have community support – and if the community does not trust the industry then it makes it even harder to implement any change to make the superannuation and related systems sustainable into the future.
So the more we are connected into the broader community the more we can build trust with them as well as with policy makers and the more we can continue to play an integral role in designing and delivering the superannuation system. To do this we will need to step up.
We must first turn our talent for talking to each to talking with the community we need to be the fund member’s champion and there is a real role for ASFA here. We work for them as their agent! I know many funds and providers are exceptional at communicating with their members. But we can do more as a collective industry to connect with the wider community.
We need to do this from an informed perspective, which is why earlier this year we commissioned Core Data to conduct a consumer research project to identify the gaps that exist when it comes to fund member's knowledge. We will use this information to build community campaigns to bridge these gaps – remember the megatrend - it is all about the customer and community experience.
Some of the findings of the research will be made public today. But let me share with you just some of them:
- We know people tend to struggle with terminology in annual statements. It is hard to understand how fees are calculated and investment returns arrived at.
- They also want a thorough breakdown of administration fees, tax deductions and dividends, a chart of the projected income as well as articles about retirement planning
- People want information about their account electronically - no surprises there
We need to drive legislative change and support it with more consumers testing.
- There is resentment that consolidating super accounts is so complex. Interestingly most – over 65% agree that inactive/dormant super funds should be automatically consolidated into their main superannuation account unless they opt out. We need to rethink our response to automatic consolidation.
- It will be no surprise that only about 17% of the sample is very confident they know how much retirement savings they require to live comfortably. I would love to see the ASFA Retirement Standard as the tool of choice for all funds and planners.
- And there are still about 22% of members who do not know how to make extra contributions. – There is clearly a communication opportunity here for you.
These can be addressed but it requires an industry-wide response.
We also need to think about how we respond to the question of how we are providing for the ‘public good’. This question is being asked by policy makers and the community and in some cases by one individual. A great example of this is Dr. Bronwyn King –who has been speaking with many across the industry about tobacco investment.
Dr. King represents a new generation of activists who don’t work via demonstrations but via social media and networks. It is matter for each fund how they respond to tobacco investment – but this is just one area where you will need to have an answer. Whatever the issue, each fund will need to step to up, beyond the horizon.
I have tried to share with you what I see as the ever changing environment for the superannuation industry, particularly now that we are such a significant part of public policy delivery and the economy.
But as we look at and develop our response, we also need to look at how we put ourselves forward as a collective industry and the role of bodies like ASFA. Industry representation needs to evolve as the environment and industry evolves: and as such our priorities, role and governance will be discussed at the leadership think-tank on Friday.
ASFA has been around for over 50 years and like any CEO I am always looking for ways we can ensure value and relevance for our members. Our core function is the development of research and policy that is sound and in the best interest of fund members. We act as the bridge between the industry and its major stakeholders. Here are some of the ways we are changing:
- Becoming the members champion by running a series of campaigns directed at addressing the knowledge, awareness and education gaps identified when it comes to superannuation fund members.
- Building better measures including the further development of the FTSE/ASFA after-tax equities index series by including an Australian fixed income index series to assist in the development of solutions for post-retirement
- Expanding and globalising the ASFA Retirement Standard.
- There will be new and improved products including an updated data integrity index and a centralised risk event data base so you can meet your risk governance requirements.
- ASFA has also joined with the Responsible Investment Association Australia to establish an Impact Investment Working Group and we have joined the world pension forum to better engage globally.
But we still have a lot to do that we need the collective industry support for:
- Some outstanding work has been done about system interoperability particularly by ASP. But this is a project that needs sustainable funding and to be managed as a significant system wide project.
- Responding to the financial system enquiry will be an enormous project. It will put super under the microscope and it offers a great opportunity for collaboration across the industry to demonstrate how super can contribute to financial stability, economic growth and financial wellbeing.
Times have changed. We are no longer flying under the radar. We must take greater responsibility for our role in providing financial security to Australians and for providing financial stability for the national economy. To gain trust beyond the horizon we really do need to think and do things differently.