In the early 1990s, the governments of developed economies started to worry about the pressure that ageing populations would put on their retirement systems. In response to these concerns the Australian Government made it compulsory for all income earners to contribute to retirement funds. These reforms and tax incentives have driven huge growth in the size of the retirement fund market over the past two decades.

This growth offers great opportunity and responsibility for retirement funds, and is accompanied by a number of challenges. Industry competition has led to greater choice and reduced fees for members, but it has also resulted in a margin squeeze for many funds, as they are meeting the costs of regulatory reform and improved technology. A compulsory contribution system has also created an ongoing challenge for funds in terms of engaging members.

Retirement opportunities
Asgard’s Infinity platform holds $10bn of Australia’s savings, and has been recognised this year as Australia’s Best Advised Product by Chant West. Asgard has also been named Best Pension Provider 2016, Australia by World Finance. This success is due to Infinity’s customer-centric design, enabling members to pay only for the features that suit them. This focus on the customer has allowed Asgard to respond to some of the challenges inherent in the Australian retirement market.

Australia still operates under the three-pillar retirement system introduced in 1992. At its core is the social security ‘aged pension’, which is funded and administered by the Australian Federal Government. This is supported by a second pillar of compulsory contributions to retirement funds, a scheme in which employers are required to contribute to a registered retirement fund on behalf of their employees. The third pillar is the additional savings of self-funded retirees, which can also be contributed to these retirement funds. This system is known as ‘superannuation’, and registered retirement funds are referred to as superannuation funds (or super funds for short).

Infinity’s modular design allows advisors and members to tailor the product to their current investment needs and only pay for what they use

Compulsory contributions have driven huge growth in the size of these funds. Total assets in super funds grew from $110bn in 1992 to $1.5trn in 2015. Australians currently contribute a minimum of 9.5 percent of their income to a super fund, and this is due to increase to 12 percent over the next decade. KPMG estimates total assets in super funds will grow to $3.5trn by 2025.

Ageing difficulties
Australians are free to choose their super fund and, if they do not nominate a fund, their contributions are directed to a super fund chosen by their employer. This presents a significant opportunity for private retirement funds. Australia is the third-largest private pension fund market in the world, and retirement savings are Australians’ largest assets outside their family homes.

While Australia’s retirement system has created huge opportunities for retirement funds, mandatory contributions to retirement have also created significant challenges for the industry. Compulsory retirement savings mean super funds have a large proportion of members who are not actively engaged with their fund. This lack of engagement and the importance of super funds to household and national savings has made the system a focus of regulatory reform. Technology costs and complying with changing regulations have been part of the ongoing expense pressure on super funds. At the same time, competitive forces have reduced fees in the industry, further decreasing the margins of some funds.

Despite the huge increase in the size of super funds in Australia, there has only been a small decrease in fees. Economies of scale have been largely offset by expense pressures. Rice Warner found that super fees, as a proportion of funds under management, decreased from 1.4 percent in 2004 to 1.2 percent in 2014. Over the same period, the firm estimated that margins reduced by 0.15 percent for super funds due to price competition.

Customer-centric solutions
Another challenge for super funds, as previously noted, is how to create products that engage members, while simultaneously managing the cost of technology and regulatory change. This also has to be balanced with competitive price pressures and maintaining margins.

In 2011, Asgard began building the Infinity retirement product. Like other super funds in the Australian market, Asgard faced the challenge of developing products to engage members while managing technological constraints.

To solve this problem, Asgard adopted a customer-centric design approach. Instead of starting with the scope of the product being dictated by technology and cost constraints, Asgard began the design process with the needs of super fund members and their financial advisors in mind.

Asgard used research houses and interviewed members and advisors to map their needs. It was found that price and flexibility were the most important features to Asgard members and their advisors. Members’ investment needs differed greatly based on their stage of life, account balance, investment strategy, and preferences when trading off between risk and return. It was clear from speaking to customers that they did not want to pay for investment options they did not use, but wanted the flexibility to change what they used as their needs changed.

Asgard then looked at different design options to address this customer need within existing technological and budget constraints. Customers were brought into Asgard’s design process to give feedback on and refine these options. From this process, Infinity’s innovative modular structure was born. Infinity takes a full ‘supermarket’ of investment options – managed funds, direct shares, term deposits, insurance, and margin lending – and packages them into modules around a central cash account. The idea is similar to a cable TV offering, where a customer can purchase packages of channels and only pays for the channels they want to use.

Infinity’s modular design allows advisors and members to tailor the product to their current investment needs and only pay for what they use. The flexibility to use modules in any combination, and add or remove modules at any time, makes Infinity a product a member can use throughout different stages of life.

Infinity starts with a central menu of managed funds, named Core. Core was built to suit members with lower balances, members with higher balances requiring simpler investment strategies, and those with risk-averse preferences. In July 2015, Asgard relaunched Core so that it offered a choice of fund managers across a suite of index and diversified managed fund options.

For no additional administration costs, members can add term deposits and insurance to the Core menu of managed funds. Members can also pay a higher administration fee to add direct equities to Core, providing a value-for-money way to implement a strategy incorporating a share portfolio. Members and advisors can also adjust their admin fees to add access to the Select menu of more than 90 managed funds and the Full menu of more than 400 managed funds.

The customer-centric design of Infinity runs deeper than its modular structure and flexible pricing. Asgard communicates with its members through tailored correspondence. The focus is always on the customer, and on providing the right tools at the right time. For example, the application process does not require the member to post any paper forms to Asgard, and accounts are activated instantly.

The proof of Infinity’s customer-centric design is its popularity with members and their advisors. This year, Infinity reached $10bn in size, less than five years after it was launched, and continues to receive industry recognition.

Legal notice
BT Funds Management (ABN: 63002916458, AFSL: 233724, RSE Licence: L0001090) is the trustee and issuer of Asgard Infinity eWrap Super/Pension (Asgard Infinity). A product disclosure statement (PDS) or financial services guide (FSG) is available for Asgard Infinity, and can be obtained by calling 1800 731 812 or by visiting Asgard.com.au.

You should obtain and consider the PDS or FSG (as required) before deciding whether to invest in Asgard Infinity. Awards are opinions only, and not a recommendation to invest in Asgard Infinity. The information provided above is general information only; it has been prepared without taking into account your personal objectives or financial situation, and so you should consider its appropriateness before acting on it.