FSC backs super fund nudges, cautions against default placements

In its response to the Senate economics references committee inquiry into improving consumer experiences, choice, and outcomes in Australia’s retirement system, the Financial Services Council (FSC) said it is supportive of allowing super funds to nudge their customers into engaging with their superannuation.

“The FSC is supportive of nudge communications that fall short of defaulting customers into specific products,” the submission said.

“A nudge of this kind would be provided by a fund to encourage a customer to engage with their superannuation and their superannuation fund, both prior to retirement and during retirement.

“What this looks like could vary between funds but would ultimately require communication with the customer and for the customer to make a choice, either to accept the advice of the nudge, do something different to what is suggested, or not make any changes to their account.”

The FSC added that there is a broad range of communications that could fall under the nudge umbrella.

“With regard to the retirement phase, the FSC sees a difference between soft and hard nudges,” it said.

“Soft nudges may simply encourage the customer to get in contact, while a hard nudge might recommend a specific product.”

There is an important distinction, the FSC said, between the two categories, however in both cases, it “places the emphasis on the choice of the customer and places the ultimate decision in their hands”.

“The FSC is supportive of allowing superannuation funds to nudge their customers into engaging with their superannuation. This may involve either soft or hard nudges,” the submission said.

“Parameters around nudging should be set however, to ensure that the language is appropriate and does not ultimately amount to defaulting.

“For example, letting a customer know that as they approach retirement, they need to make a decision about what retirement product they wish to utilise would be an acceptable nudge, while contacting a customer to let them know that they will be placed in a product when they retire, would not necessarily be acceptable.”

The Super Members Council (SMC) also supported the implementation of necessary changes to allow funds to provide “useful nudges” without them being deemed personal advice.

The nudges, the council explained, would be particularly aimed at members who are resistant to paying for comprehensive personal advice or are wholly disengaged from their super savings.

Clarity on super funds providing advice

Looking at the retirement system more broadly, the FSC said it would back any government action that would help to decrease the complexity of the system and improve financial literacy.

“One of the best ways to do this is to provide more opportunities for education, guidance, and access to financial advice,” it said.

“Both government and industry have a role to play in improving access to these measures however, superannuation funds require more certainty about what advice and guidance they can provide.

“This can be achieved by implementing the recommendations of the Quality of Advice Review in a timely manner, as well as encouraging regulators to provide more guidance in relation to the implementation of the retirement income covenant (RIC) and other regulatory matters such as the provision of calculators.”

The body flagged that superannuation funds need to understand exactly what level of advice they are able to give.

“Providing clarity to funds about their ability to provide financial advice is a key component of assisting customers to get the most out of their retirement, including selection of insurance and insurance-based retirement products, and will also assist funds to provide general education and nudges by providing certainty as to the regulatory settings for the varying levels of advice,” the FSC said.