Current regulatory and policy settings for retirement income products need to be expanded to reflect the growing number of Australians with complex financial advice needs, which is projected to grow by 70 per cent by 2050, according to new research commissioned by the Financial Services Council (FSC).
The study, conducted by NMG Consulting on behalf of the FSC, found choice superannuation investment products, which allow superannuants more flexibility to invest their retirement savings, currently make up over 70 per cent of the market and will continue to be popular.
However, FSC chief executive Blake Briggs stated current regulatory and legislative processes tend to favour low-cost default options, which require little management, potentially disenfranchising Australians who prefer to exercise more control over how their retirement savings are invested.
“The number of Australians with complex financial advice needs will grow by 70 per cent to 7.2 million consumers over the next 25 years and the regulatory framework for consumers choosing their own superannuation and investment arrangements needs to evolve to meet their needs,” Briggs noted.
“The current ‘one-size-fits-all’ approach to superannuation regulation prioritises simple, default arrangements, adversely impacting the 70 per cent of the market characterised by engaged consumers making investment choices and supported by financial advisers.
“Australia’s regulatory framework needs to evolve to accommodate the superannuation funds, investment platforms and financial advisers that cater to Australians with more complex financial needs.”
To address these issues, the industry body recommended a revised approach to reduce the regulatory burden on superannuants and advisers accessing choice retirement products. For example, the Your Future, Your Super performance test should only apply to MySuper and simple choice products, easing unnecessary regulations on broad choice products.
Additionally, the Retirement Income Covenant should explicitly recognise the role of financial advisers, ensuring trustees support members who have made active investment decisions. The member outcome assessment process should be streamlined by integrating it with other trustee obligations to reduce redundancy.
Further, the regulatory framework should respect the established engagement preferences of broad choice product users, exempting these funds from unnecessary additional engagement standards. Lastly, fee templates should be adapted to capture the diverse configurations of broad choice products, allowing for clearer and more contextual reporting of fees.
“A more sophisticated approach to financial services regulation would promote competition and reduce regulatory cost and complexity for choice products and expand consumers’ access to financial products that better suit their personal needs,” Briggs said.
The findings follow consumer polling released by the FSC earlier this year that revealed almost 90 per cent of those surveyed trust themselves over the government in deciding which retirement products they will use.
