Australian pension shares details on new option to deal with lump sums

As it is in Canada, member engagement is a buzzword for the defined contribution pension plan industry in Australia.

But engagement doesn’t go far enough, said John Farrington, executive officer for corporate relationships at the Equip superannuation fund in Australia, during his presentation at Benefits Canada’s 2017 Defined Contribution Plan Summit. “I think engagement is rubbish. I want people to be married to me and stay forever,” he said.

Farrington went on to describe the ways Australia’s pension industry is tackling the issue. First is the growing use of data analytics. “Previously, we had only very blunt tools to know the gender, age and occupation of members,” said Farrington.

Read: ATB focuses on flexibility in pension redesign

“Now, we use a data warehouse to consolidate data from member record-keeping systems, call centre interactions, website usage, attendance at education seminars, financial planning appointments and survey responses, to get a much clearer picture. By building a psychographic profile, we can target communication that is so much more personalized and relevant.”

The provision of advice is another opportunity. Farrington noted big pension plans have responded by hiring their own teams of planners, providing advice on single issues, increasing workplace educational sessions, boosting the number of pre-retirement seminars and offering online educational videos, calculators and robo advice.

Read: Optimizing the member’s journey to retirement

Many members don’t know what to do with lump-sum payouts because they don’t get professional advice, said Farrington. “We needed a new, smarter option and we came up with a new product for people who don’t know what to do with a lump sum.”

His organization’s new product puts 21 per cent into a cash option, 39.5 per cent into a conservative option and the other 39.5 per cent into a growth option. It pays seven per cent from the cash bucket every year. At the end of the year, earnings from the growth and conservative buckets — if they’re positive — top up the cash bucket and the cycle repeats.

“We realize it’s not a silver bullet, but it’s pretty simple. Members understand and trust it,” he said, adding it’s another way to help members have income in retirement.

Read more stories from the DC Plan Summit