State Super CEO sees human touch as key to Australian pension reforms

The Australian government has proposed significant changes to the nation's A$4 trillion ($2.6 trillion) pension industry, aimed at preparing for an estimated 2.5 million retirees over the next decade.

The reforms, announced by Treasurer Jim Chalmers at a pensions industry conference on November 20, focus on improving online resources, developing better retirement products, and implementing a new reporting framework for retirement outcomes.

"As our economy changes, population ages and the super system evolves, more and more Australians will draw down on bigger pools of savings, that they will rely on for longer," Chalmers said.

"We are working to ensure there is as much of a policy and product focus on the retirement phase as there is on the accumulation phase."

State Super, which manages A$37 billion ($24 billion) in assets, already has the majority of its members in retirement phase, making these incoming challenges familiar territory.

The fund's experience offers valuable insights as the broader industry adapts to serve an aging membership base.

"Our demographics will lead to an inevitable requirement for funds to offer retirement solutions," John Livanas, CEO of State Super, told AsianInvestor. "In reality most do, with Account Based Pensions being the most popular."

MAN VS MACHINE

While the industry increasingly turns to technological solutions, Livanas emphasised that the human element remains crucial in retirement planning.

John Livanas,
State Super

He pointed out that technology, including machine learning and large language models, is being considered to assess members' financial positions and interpret complex information.

"People entering retirement will, probably for the first time, have to contend with the dual challenges of making sense of the responsibility of making decisions about what is probably the largest single lump sum they have accessed, and then working out how many years they want this to last," said Livanas.

Personal interaction is essential, the executive maintained.

"People in retirement are looking for financial counselling, not just advice. People are looking for people."

Livanas advocates for a balanced approach to implementing the reforms, combining technological advancement with enhanced personal service.

"I think the solution will need two things: technology, to resolve the compliance challenges and the reporting, and a relaxation of how our customer service people can talk to members about their retirement," he said. "With the two, we should have a robust and scalable system."

State Super has been focusing on vulnerable members and improving communication with all members in ways that suit their preferences, drawing on its extensive experience with retirees.

INVESTMENT IMPLICATIONS

Australia’s reforms come as the superannuation industry's total assets increased 9.1% in the year to June, driven by compulsory employer contributions that rose to 11.5% of workers' wages, and a planned increase to 12% next July.

While most large Australian super funds currently maintain growth-oriented portfolios with 60-70% allocated to equities, infrastructure, and property, State Super's position as a closed fund with predominantly retired members has required a more conservative approach. The fund has focused on defensive assets and regular income generation.

"As a whole, I believe that the reforms are more likely to keep members within their existing funds. That means a lower liquidity challenge and greater longer-term investment options focus," Livanas said.

This stability could allow funds to maintain strategic long-term positions even as their membership bases age, though some funds may need to gradually adapt their investment approaches to better serve retiring members.

The shift mirrors broader industry dynamics, where funds are increasingly grappling with the challenge of managing the transition from accumulation to retirement phase investments.

Government estimates indicate pension drawdowns will increase from 2.4% to 5.6% of GDP over the next four decades, reflecting significant demographic shifts in the economy. Industry surveys have shown that many Australians are anxious about retirement and worried about running out of money.

"The outcome? Probably not hugely different to now, but with a lot less anxiety by our members and fewer people slipping outside the safety net of someone talking to them," Livanas added, referring to the proposed changes.

The reforms will be subject to consultation next year, with the Financial Services Council and the Association of Superannuation Funds of Australia both expressing support for the government's initiative.

Chalmers asserted that the changes will "empower more Australians to make the most of their superannuation through more trusted information, better products and greater transparency," and give retirees "peace of mind" in terms of helping their retirement savings to last longer.