Given the virtual elimination of the employer-sponsored funds, you might think Australian employers have no more reason to be interested in your retirement prospects than they do your mortgage. In practice, however, employers actually do care about their workforce’s retirement prospects. When asked to rank what was most important to their organization with regard to their retirement plan, “doing the right thing for employees” was ranked first by over a third of employers.
The Australian retirement system is, by global standards, a pretty healthy system. Yet, in our previous retirement survey[i] only one in five people in the Australian workforce had a sense of optimism or happiness about their financial situation in retirement.
We believe this lack of member confidence in retirement outcomes has less to do with the overall adequacy of the system and more to do with its complexity. The integration of the Age Pension with superannuation, especially the notorious twin-headed asset and incomes test, is the primary source of complexity. The prevalence of multiple accounts hasn’t improved things in the past either.
These complexities lead to an unsurprising similarity between Australian and global “plan sponsors” in our survey this year: Australian employers have low expected retirement income replacement ratios for their employees approaching retirement and that reflects a global pattern.
In fact, the ability of Australian employers to assess the retirement outcomes for their workforce is clearly impaired. Not only is there the problem of Age Pension and superannuation integration, or the problem of multiple superannuation accounts, there is also the problem of investments or assets outside the superannuation system.
1. Simplicity Is the Ultimate Sophistication
In the early days of superannuation, when your plan was linked to your employer, the plan was promoted as part of a suite of benefits for new employees. The superannuation industry now operates independently of any individual employer, which has led to fierce competition for members. Much of that fierce competition has focused on investment performance and fees.
Given that employers in Australia actually care about retirement outcomes for their employees, you would think their primary focus would be on the investment returns and fees associated with the funds being used by their employees. Not so. Mathematically, both are critical to generating solid retirement outcomes. However, the best mathematical calculations in the world are useless if members don’t understand enough to engage.
Our survey indicated a strong local and global focus on simplicity and ease of use over and above investment returns or fees.