Perspective 1: Sales Model or Service Model?
In business when we speak about sales models we are all discussing pricing and margin structures. On the other hand some suppliers do have an eye for managing their service model, defined as the value being delivered to the client. As an overall observation, the financial services industry appears to be overly dependent and focused on their sales model. Product providers around super have limited capability to manage super as a remuneration benefit, very much proven by the fact over 80% of members in employer super are invested in their MySuper investment default. Regulatory emphasis on the MySuper investment model along with the reluctance of product providers to provide a service aimed at optimising super as a remuneration benefit by providing personal scaled advice at individual account level is misdirected.
The reason for this misdirection is uncertain, basically because it is so illogical. The recipe for optimising your super balance and therefore your income in retirement is a combination of cost control, maximising your contributions, and actively investing in line with the next 2 year market cycle. Sitting inside one investment selection for the period of your career will not optimise your super.
As a remuneration benefit, super is a wealth creation strategy and as with every wealth creation strategy, it does grow better if you give it some sensible attention.
Perspective 2: MySuper Design
There are a variety of MySuper investment defaults presented by various products. Some of them are a fixed balanced fund and some present a life cycle strategy where the funds are exposed to more growth assets and less defensive assets early on before being de-risked as an individual approaches retirement.
Only one product provider has altered the design of their MySuper investment default since its introduction. Everyone else has remained with their original design even if the asset allocation has moved. Some MySuper investment defaults are revalued on a daily basis dependent upon market forces where some others have a high proportion of direct and illiquid assets which are only periodically revalued based upon revaluation by an independent valuer. Market forces are promoting MySuper as the permanent solution in managing everyone’s individual investment strategy. Unfortunately there is more than one design flaw in MySuper, a strong example being the selection of the one balanced fund as the MySuper investment default and its negative impact preventing optimisation of the asset at an individual account level.
Perspective 3: Older Australians and their insurance
Unlike asset management above which remained free of scrutiny by the Royal Commission, insurance did come in for some attention but maybe not quite enough. Within employer super, if you examine the age structure of premiums, you will find that around 50% of the premium is actually paid by 15% of the plan population. Premiums become more expensive as you get older and insurance premiums become most expensive after age 50. One can understand that maybe the older you become, the higher the risk of a health challenge.
The payment of premiums where employees are accumulating high balances, damages their contribution strategy, something that becomes more and more vital as you approach retirement with return on investment not so secure. Employees might have more assets, minimum debt, no dependencies, and no health issues and yet they are still paying for insurance.
Every employer who subsidises their employee’s super plan needs to consider insurance design rather more closely than they do.
What do you need to do?
Sometimes modern life is a rush and everything is just too packed up together and many workers have little time to think before they are blamed for their hasty decision. I was once told that “preparation precedes performance”, a saying I have often repeated when considering a future decision.
Employers who are serious about their employee’s well-being and welfare, especially about that significant part of every employee’s package known as super guarantee contributions, are welcome to contact one of our consultants on 1800 111 299 or by email at firstname.lastname@example.org to find out if they can unpack the mystique of employer super and deliver a superior remuneration benefit to their workforce.