The Industry Fund Services and Challenger whitepaper concludes that these simplified frameworks could help increase engagement and retirement outcomes “for all Australians”.
The research identified five behavioural biases that impact the complex, long-term decision making needed in retirement planning. These included: choice paradox and framing, being overwhelmed by options and complexity; temporal discounting, focusing on immediate gains over long-term security; and loss aversion, feeling losses, such as lack of flexibility, twice as much as gains.
Commenting on the findings, behavioural scientist Dan Monheit said addressing behavioural biases is critical to helping overcome complexity and confusion to better engage retirees in the advice process.
“Financial advisers cannot avoid influencing preferences. Every aspect of an interaction, from the order options are presented to the way risks and rewards are framed, shapes outcomes,” he said.
“This presents a significant opportunity to remove complexity and improve the advice experience. By framing choices in a way that aligns with people’s underlying preferences – not in response to overwhelming information, they’re more likely to make confident, informed decisions.”
The companies highlighted that to balance behavioural biases, advisers should look to use simple language and visuals, narrowing decision-making, reframing discussions to focus on benefits, and balancing long-term and immediate considerations.
Adrian Gervasoni, executive manager of advice services at Industry Fund Services, said advisers play an increasingly important role in retirement, but must be aware of how biases impact the process.
“Retirement planning is about more than just financial modelling – it’s about helping retirees make confident decisions in the face of uncertainty,” he stated.
“Through a diligent approach to choice architecture we can put the retiree in the driver’s seat. We want to move the conversation from product features and benefits to focus on consumer preferences, such as certainty and flexibility. Ultimately, the goal is to deliver greater confidence when entering into retirement.”
Default bias, the tendency to choose the familiar, is another bias cited by the companies that arises in retirement planning.
“Advice is a human-centric process, filled with emotions and biases that influence the options we present and the way information is understood,” explained Gervasoni.
“Being aware of default bias, and shifting the focus from what is simply familiar, like account-based pensions, can help deliver retirement income solutions that are sustainable, secure, and truly address long-term income concerns.”
Industry Fund Services and Challenger stated that the research led to three distinct retirement models:
- Certainty: This balances flexibility and certainty, focusing on long-term income so retirees can feel confident their money will last for life. Research shows that a mix of 70 per cent account-based pensions and 30 per cent lifetime income products, such as annuities, can maintain flexibility, provide strong estate value, and offer partial asset-test exemption for Age Pension assessments.
- Balance: Designed for retirees who want more flexibility and access to capital and are less concerned about income lasting for life. Modelling shows that an 85 per cent allocation to account-based pensions and 15 per cent to lifetime income products, such as annuities, still provides modest income certainty and Age Pension assessment benefits.
- Flexibility: This prioritises full flexibility with a 100 per cent allocation to account-based pensions. The trade-off is reduced income certainty and higher longevity risk, which may affect spending confidence and estate outcomes.
According to Adrian Aardoom, head of retirement partnerships at Challenger, these model strategies are capable of removing complexity, simplifying decision making and delivering on core retirement needs, while ensuring any trade-off is easily understood.
“There is mounting pressure on the financial services industry to better address the needs of Australians when it comes to their retirement planning and income demands,” Aardoom said.
“Through an understanding of behavioural biases, combined with Challenger’s deep expertise in retirement income, we have developed a simplified, practical framework that members can easily understand and advisers can easily embed.”
I wonder if both the vertically integrated super funds and a product manufacturer addressed their bias when conducting this study? They wouldn’t be advocating for watered down advice into complex product that ties up their FUM would they?
Vertical integration and lifetime products with product over member and no code of ethics.bwhat could go wrong? How do these people sleep at night? Sick of self interested codswallop industry super pushing their profit over Australians and the tail wagging dog bias regulators. Disgusting