Tim Steele

The SMSF sector will put itself under the microscope at the Thought Leadership Breakfast (TLB) being held on the opening morning of this year’s SMSF Association’s National Conference at the Brisbane Convention & Exhibition Centre from 21-23 February.

An expert four-member panel will examine the challenges facing the sector that include the potential for more regulatory intervention and the growing attention that APRA-regulated funds are giving to the de-accumulation phase of superannuation and longevity risk.

Session moderator Class CEO Tim Steele will be joined by panel members: SMSF Association CEO Peter Burgess, Heffron Consulting Managing Director Meg Heffron, KPMG Partner Linda Elkins, and Brighter Super CEO Kate Farrar, as they hold up a mirror to the SMSF sector and examine where its strengths lie and where it needs to “level up”.

Burgess says the TLB has become an important forum for the sector to take a close look at long-term issues and trends confronting SMSFs and the wider superannuation system and this year’s event will be no different.

“Over the past decade, we have witnessed APRA funds experience significant change, often driven by government intervention, such as performance benchmarking, additional statutory reporting, compulsory member communications, and mandatory retirement support.

“This intervention, which has been designed to improve the system by protecting member benefits and enhancing their outcomes, has largely bypassed our sector.

“But the question we now ask is this all about to change, and, if so, how?

“In the past we have often been immune to the changes in the broader superannuation sector, but has this been a fool’s paradise that puts our sector at risk of being left behind?

“Do we need to be more open-minded when it comes to regulatory intervention, or do we remain wedded to the status quo that has served us well in the past, understanding that APRA funds are rapidly changing, particular as they focus more on the pension phase, an issue where we have long been the industry leader?”

Burgess says the Association has deliberately sought input into the debate from an APRA fund – a first for the TLB – in the form of the Queensland-based Brighter Super that has more than 250,000 members and about $30 billion in funds under management (FUM).

“Up till now APRA funds have focussed on the accumulation phase. But as they turn their attention to the de-accumulation phase – a space we have traditionally dominated – with the prospect of mandatory retirement support for members looming, will the tables turn?

“Certainly, hearing the views of Brighter Super’s Farrar on these issues should be necessary listening from all conference delegates,” he says.

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Linda Elkins

Colonial First State announced that Challenger annuities are now available via its FirstWrap and FirstChoice platforms, alongside CommInsure annuities, which became available via those platforms in June 2015.

It is the first time any Australian platform has offered access to Australia’s leading annuity providers.

With Colonial First State’s FirstChoice platform used by more advisers than any other platform in Australia, and the FirstWrap platform among the top six[1], it means retirees and advisers now have easy and convenient access to annuities for retirement planning.

Linda Elkins, Executive General Manager Colonial First State, said being the first to provide annuities via platforms to retirees and advisers was an exciting achievement.

“Colonial First State has more retiree customers, looks after more retirement savings, and pays more in private pension payments than anyone else. We know retirement, which is why we have partnered with Challenger and CommInsure to deliver annuities via our platforms at the same rates as getting them directly,” Ms Elkins said.

With an increasing focus on addressing ‘longevity’ risk (the risk of outliving retirement savings), advisers are more interested in including annuities in retirement portfolios. Research by Investment Trends[2] shows almost 60 per cent of advisers are using or planning to use annuities in 2015 – more than double the level in 2012.

Ms Elkins said convenient access to guaranteed income stream solutions, like Challenger and CommInsure annuities, makes it easier for retirees and their advisers to arrange regular, stable incomes in retirement.

“This is vitally important for the rapidly growing number of retirees in Australia. Offering annuities via our platforms makes it easier for retirees to lock-in a guaranteed cash flow irrespective of how long they live,” she said.

Recent modelling conducted by Ernst & Young and Colonial First State[3] shows that combinations of an allocated pension and a lifetime annuity in a retirement portfolio can often provide superior outcomes to an allocated pension alone.

“Including annuities alongside account-based pensions has become an increasingly popular approach to retirement portfolio construction and provides a level of longer-term income to address growing issues such as longevity risk and sequencing risk,” Ms Elkins said.

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Linda Elkins

Colonial First State is urging retirees to re-imagine their retirement, with a focus on freedom, not fear, in this next phase of their lives.

This is the core message of a new campaign launched by Colonial First State, called “Be Ready For Next”.

Linda Elkins, Executive General Manager Colonial First State, said more Australians are retiring than ever before: “For many, retirement is uncharted territory. But it’s changing: people are not just fading into retirement – they are getting ready for what’s next,” she said.

“Colonial First State believes people can feel confident about re-imagining their retirement: they are living longer, healthier lives and they can see retirement as an opportunity to follow their passions and aspirations,” Ms Elkins said.

The campaign includes television advertising, a radio campaign and sponsorship of the SBS coverage of the Tour de France in July. Colonial First State will also support the campaign with web-based content and tools and provide advisers with support and information.

“Through the campaign, Colonial First State aims to build on its position as one of Australia’s leading superannuation and retirement brands. We have a strong commitment to partnering with financial advisers and extensive relationships with retiree customers as the biggest payer of pensions behind Centrelink,” Ms Elkins said.

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Linda Elkins

More than $80 of every $100 paid as a retirement benefit is taken as a pension, refuting the accepted view that Australia has a strong ‘lump sum’ culture.

The Colonial First State Income Stream Index, launched yesterday, measures the percentage of retirement assets taken as income streams rather than lump sums. For the 2014 financial year, the index shows 83.3 per cent of retirement assets were taken as income streams.

This contrasts with the widely held view that around half of all benefits are paid as lump sums.

“This analysis suggests that Australians’ reliance on lump sums in super is an exaggeration and adds a new dimension to the debate about compelling Australians to take an income stream in retirement,” said Linda Elkins, Executive General Manager Colonial First State.

“Australians are generally looking to the long term to fund their lifestyle in retirement. This is a sign of a maturing system, where – through good education and advice – people are becoming more and more self-reliant,” Ms Elkins said.

“It supports the principles outlined in the Financial Services Inquiry that balance the desire to increase systemic efficiency in providing retirement incomes with a degree of individual freedom and choice.

“As the largest provider of account-based pensions in Australia, Colonial First State has vast experience in this area. The index is consistent with our observations of our account-based pension clients, who tend to be conservative and sensible in how they manage their retirement income,” she said.

Research author, Michael Rice, Chief Executive Officer of Rice Warner, said the data showed a stronger preference for income streams as balances grew.

“We estimate that as the superannuation system matures, 96 per cent of all retirement assets will be taken as income streams by 2025,” Mr Rice said.

“The data shows the system is generally working well. The question is not so much about whether Australians use income stream products in retirement but whether they are using the right income streams. This is certainly the emphasis of the recommendations in the Financial Services Inquiry final report,” he said.

The Colonial First State Income Stream Index is derived from Rice Warner’s analysis of its comprehensive dataset, comprising information from more than 10 million member records representing more than $55 billion in assets. The index will be updated annually.

According to the report, around one-third of accounts are taken as full lump sum payments, with the rest taken either as pensions or as part-pension and part-lump sum. Of the people who opt for lump sums, Australian Bureau of Statistics data (2013) suggests they tend to use them productively: one quarter invests in their own home, 18 per cent reinvest as ordinary money and 13 per cent reinvest into another retirement scheme.

The index shows that only 30 per cent of accounts with balances of $50,000 or less are taken as pension rollovers. However, for balances between $50,000 and $100,000, the split between accounts taken as lump sums and those taken as pensions is roughly even. For balances of more than $300,000 in all fund types, including Self-Managed Super Funds (SMSFs), more than 91 per cent of accounts are taken as pensions.

By gender, around 75 per cent of retirement benefits paid to men are taken as pensions, while it’s around 71 per cent for women. This does not include payments to SMSFs members, in which a very high proportion of men and women take their benefits as pensions. In retail funds, around three-quarters of all retirement payments are paid as pension payments, while in industry funds it is around two-thirds.

By State, excluding SMSFs, a higher proportion of retirement assets were likely to be paid as pensions to people in the ACT (74 per cent), Victoria (71 per cent) and NSW (69 per cent). By contrast, only half of retirement assets in the Northern Territory were likely to be paid as pensions. In Western Australia and Tasmania (both 62 per cent) and Queensland (63 per cent), the proportion of retirement payments paid as pensions was also below the national average.

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Professor Deborah Ralston

Technological innovation is underpinning a revolution in how financial services are delivered in Australia, says Professor Deborah Ralston, Executive Director of the Australian Centre for Financial Studies (ACFS).

“Today this technology enables wealth managers to deliver financial advice to three million people annually, to oversee the administration of 20 million superannuation member accounts and to manage investments totalling $1.8 trillion on their behalf – and this revolution is still in its infancy,” she says.

“For example, how far away is the integration of advice and investment platforms, how will the regulators respond to this technological revolution, and will access to individual superannuation accounts in APRA-regulated funds lead to a decline in the growth of SMSFs?”

These are just some of several themes about the role of technology in financial services that will be teased out at morning briefing session being sponsored by ACFS and EY on 14 May in Sydney. It is titled “Riding the digital wave: are wealth platforms about to take off or wipe out?”

Speakers include former Labor Superannuation Minister Nick Sherry, EY Partner Jeroen Buwalda, ASIC Senior Executive Leader Ged Fitzpatrick, SuperIQ CEO Andrew Bloore and Colonial First State Executive General Manager, Linda Elkins.

Buwalda says wealth managers are facing unprecedented opportunities and challenges as a result of the increasing uptake and convergence of consumer technologies.

“In an environment where evolving technology makes it easier than ever to engage with customers, providers need to ensure they are making the best use of their platforms – whether collaborating with clients, advisers of platform partners in real time or managing regulatory compliance obligations more effectively,” he says.

Prof Ralston says every day we hear about new innovations in technology and how they are changing the way we live; smart phones, tablets and social media are already ensconced in our daily routines and wearable devices and 3D printing are almost upon us.

“These massive changes obviously beg the question about how wealth platforms are responding to technology innovation to better meet the needs of customers, trustees, administrators and asset managers.”

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