Reimagining Retirement: How Targeted Prompts Can Improve Member Outcomes

Retirement “is the nastiest, hardest problem in finance”, as Nobel prize winner William Sharpe puts it. There is no one-size-fits-all solution to meet the diverse needs of retirees.

However, a gentle nudge can guide members to the right information and help them improve their retirement outcomes by enabling them to self-navigate the complexities of retirement planning.

Targeted prompts are aspects of a product design that influence members’ behaviour in a predictable way without being restrictive or mandated. This aims to enhance member engagement, by providing tailored guidance and communication that help passive members progress towards their own optimal retirement pathway.

This approach is supported by the Government’s vision that:

"At key decision points … superannuation funds [will] provide members with personalised 'nudges^{'" [1]}, encouraging members to consider their financial situation and seek advice they may otherwise miss along their retirement journey.” ^[2]

Prompts in play: Practical examples of member engagement

As the focus shifts to supporting increased member engagement, trustees and funds are exploring ways to do so within the current general advice framework.

Findings from a joint thematic review conducted by APRA and ASIC indicate that some RSE licensees are considering the development of distinct “default solutions” tailored to various member sub-classes based on their financial needs and superannuation balances.

Other notable examples of targeted prompts include:

Soft nudges for members nearing retirement that highlight the advantages of transitioning to a tax-free pension phase.
Alternative drawdown profiles that offer a range of options tailored to members’ individual expenditure patterns and financial goals.
Customised tools on digital platforms prompting members to simulate and visualise the impact of various financial strategies on their retirement savings.
Deliberate communications at key life stages, for example, emphasising the benefits of voluntary contributions, which can significantly boost retirement savings over time.
Predictive modelling to forecast member outcomes and design prompts aimed at achieving the most favourable result. We note that approximately only 20-30% of funds have developed predictive models.^[3]

Understanding targeted prompts in superannuation

There are still opportunities for further growth in adopting prompts within superannuation funds, especially when compared to other financial services sectors (such as banking and finance).

Progress has been gradual as:

Funds are fearful of falling foul of advice laws and the associated penalties: Financial advice legislation is complex and there is uncertainty around the boundaries between financial advice and nudging. This means that funds are waiting for the government’s plans to provide greater legal certainty through a formalised advice framework prior to taking action.
Robust data collection and analytics infrastructure is limited: Funds need to understand member behaviour and preferences in order to “nudge” them toward better outcomes. While this capability is expected to improve with time and experience as trustees analyse member data under the Retirement Income Covenant, many trustees still need to go further to fully leverage nudging strategies.

Successful applications of targeted prompts across industries

Fortunately, there are some success stories from which inspiration can be drawn as changes are made to legislation:

Case study 1: Banking sector, prompts incorporated in customer digital experience

Targeted prompts are used in banking apps and digital notifications to encourage positive financial behaviours and support customers in reaching long-term financial goals. This includes allowing users to track saving goals and view spending insights, empowering them to achieve financial milestones and monitor their financial habits. A recent study at a Mexican bank reported a 6.1% increase in savings when customers received targeted ATM and SMS messages. ^[4]

Case study 2: Insurance industry, prompts used in client communications

Prompts have been used in emails, phone calls and letters to help guide consumers toward informed choices by simplifying and presenting policies in a clear and accessible manner. A health insurance take-up study in the US revealed that nudging interventions increased enrolment rates by a range of 0.3% to 14.8%, with an average impact of 5.1 percentage points. ^[5]

Thus, as the superannuation sector looks to benchmark against other industries, it is well placed to leverage these strategies to drive innovation and growth.

On balance, this suggests that by providing this personalised support, funds can help members navigate their unique financial journey and enhance their overall retirement readiness, offering a more self-directed experience.