Super funds to advise the ‘missing middle’

According to Chant West general manager Ian Fryer, the so-called “missing middle”, those who need more than simple financial advice but can’t afford comprehensive advice, should be getting more help from their super funds in regard to their pre- and post-retirement planning.

“Super funds need to do more to assist members in transitioning from the accumulation phase to the decumulation phase. People need to understand how much they can draw down in retirement and how they should be invested,” Fryer said.

Given that the optimal outcome will depend on each member’s situation, they need tailored financial advice.

“Indeed, the best way to deal with retirement planning is through financial advice. To get tailored advice, it might cost about $5,000. But many super fund members would not want to or be unable to pay this much,” he said.

Despite the government’s supposed efforts to bring down the cost of advice, many retiring Australians are forced to go without this crucial service, with the lack of affordability consistently noted as the biggest barrier to access.

As such, Fryer suggested that digital advice could be the key to super funds providing more retirees with personalised financial advice, while also utilising nudge notifications to ensure members are getting advice at the right time.

“There is some intra-fund advice offered by super funds, which is helpful in answering single-issue questions during the accumulation phase, but someone moving into retirement needs more than this,” he said.

“Digital advice is one way that we can help members answer the critical retirement planning questions. An individual could enter some personal financial information into an online advice tool which produces a recommendation based on those inputs.

“Ultimately, we want to get [to] a stage where, if you’re in a certain cohort and you get to retirement, a fund might say, ‘Based on what we know about you, here’s what we suggest and if you want to implement this change, just click this button. Or if you want to talk with someone about it, call this number to speak with one of our advisers’.”

Fryer noted that, due to a lack of guidance and understanding, most Australians tend to only take the minimum drawdown from their super fund once they hit retirement even though they could be taking more. Access to a financial adviser could provide them the necessary peace of mind to spend without fear of running out.

“If you do so, at age 75 you’re likely to have a whole lot more in your super than when you retired. Is that really the point of super? This does not necessarily align with the purpose of super, which is to provide an income during retirement,” he said.

“Some funds are helping members understand that they can likely draw down more. In those years from age 60 to 75, funds like AustralianSuper and NGS Super are helping members understand they can draw down an extra 2 per cent, for example.

“This might not sound like much, but it’s an extra 40 per cent to 50 per cent in income, which can radically change how people live in retirement.”

In order to address this advice gap, a number of super funds have started introducing advice offerings, although Fryer said there are still many Australians going without advice.

Colonial First State, for example, launched a digital advice offering last month for just $88 a year for CFS FirstChoice members who don’t currently have an adviser.

This offer allows members to access personalised digital advice in relation to their investment options, contribution strategy and insurance arrangements as they relate to their CFS FirstChoice account.

Cbus Super also recently unveiled Advice Essential Plus, its new affordable advice offering for its members and their partners for a charge of just $990, giving them access to “strategic financial advice” via the fund’s “internal financial experts”.