Superannuation funds are not only under regulatory and government pressure to develop effective retirement income solutions for members, they’re also being watched closely by financial advisers. Funds that fall short may see members leaving for funds with better solutions, on the recommendation of advisers. This is an emerging risk to funds, and it puts them on notice that they can’t afford to fall behind. 

A new competitive battleground is set to open up between superannuation funds as financial advisers become more familiar with and critical of the retirement income solutions offered by funds. 

Super funds are also likely to find themselves increasingly at loggerheads with financial advisers, as advisers begin to shop around for the best retirement solutions for clients. 

The development of retirement income products by super funds is in its infancy and pressure from regulators and government has them scrambling to bring solutions to market. Some have plans on the drawing board to develop quite elegant and sophisticated solutions that effectively address the major risks that members face when they retire – including inflation, market risk and longevity risk. 

But others are less well developed in their thinking and planning. As funds roll out solutions and the differentiation between the best and the worst on offer becomes clearer, the choice facing those who advise members on the best way forward also becomes clearer. 

As advisers assess retirement income solutions, they are beginning to contemplate switching clients from the fund they have been in for the accumulation phase into a new fund, with a better retirement income solution for the retirement phase. 

Funds with better retirement income solutions may see members rolling into the fund on the recommendation of financial advisers, while funds with poor retirement income solutions may begin to lose members as they approach retirement – which is when they can least afford to lose them, because the departing members’ account balances are generally at a peak and subsidising the provision of services to members with lower account balances. 

This sort of advice is likely to become more prevalent as clarity emerges over how members can pay from their superannuation accounts for advice. 

The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill tabled in Parliament before Easter sought to provide that clarity by amending section 99FA of the Superannuation Industry Supervision Act but has been criticised for (among other things) placing too great an onus on fund trustees to approve every piece of advice delivered to members. 

Senate inquiry

The legislation has been referred to the Senate Economics Legislation Committee for inquiry, which is due to report by June 20, and the industry is expected to push for amendments before it passes the Senate.