Behavioural Finance and the Design & Distribution of Retirement Income Products

DDO for Superannuation Funds

Superannuation funds will need to comply with the new product design and distribution obligations (DDO) that are due to come into effect in 2021.

In this guest blog, Simon Russell, Director of Behavioural Finance Australia, examines what superannuation funds need to know about behavioural finance and associated decision-making research to implement these new requirements successfully, particularly in relation to products designed to provide income in retirement.

Improving consumer outcomes

ASIC’s product design and distribution obligations (DDO) are its latest attempt to remedy poor consumer outcomes. The obligations require that financial products be distributed to consumers for whom they are suited, and includes investment, superannuation, insurance and various credit products.

For superannuation funds, DDO applies to all products, including retirement income products, other than MySuper.

Within superannuation funds, DDO is relevant for people in roles including:

  • Sales, marketing and member engagement; to change their promotional and explanatory materials, call centre scripts and web sites.
  • Product design; to redesign products and their features.
  • Technology, data and member insights; to implement changes to the way products are presented, or use data to assess members’ needs.
  • Leadership, governance, legal and risk management; to assess the adequacy of their fund’s product governance arrangements.

ASIC’s approach, as evidenced by their draft regulatory guide and consultation paper, aligns with behavioural finance and associated decision-making research in several ways. I will share one specific psychological issue that product issuers and distributors need to consider—choice architecture.

The importance of choice architecture

ASIC references the importance of choice architecture 16 times in its draft regulatory guide. It explains choice architecture as ‘…features in an environment, noticed and unnoticed, that influence consumer decisions and actions. These features are present at every stage of product design and distribution.’

ASIC’s emphasis on the role of choice architecture is consistent with the finding of behavioural research that people’s decisions can sometimes be influenced in important ways by how information is framed and presented to them. My own research demonstrates this too – people’s choices can be influenced by the order in which information is presented, the number of options they are given, and the categories used to describe their options.

People’s choices and subsequent behaviour depends on the complexity and uncertainty they face, the amount of information they receive and how it is layered and chunked into meaningful pieces, the ease with which they can make appropriate comparisons, the frictions they encounter in processes, and a product’s default settings.

Design influencing decisions

Member’s choices can be influenced by design and it is critical to consider such factors when designing and presenting retirement income products to members. Whether projected investment balances are shown versus projected incomes, or even projected incomes displayed as weekly, monthly or annual equivalents can have different impacts on people’s choices. For example, an income of $500/week might be logically equivalent to $26,000/year and to an investment balance of $500,000 (say), but because of people’s inherent decision-making biases, each different representation can nudge clients to make different choices.

The problem for product designers or distributors who are not familiar with the relevant research is that these things can sometimes seem inconsequential. In an entirely logical and rational world they would be – in that world members would make appropriate choices regardless of how information happened to be presented. However, in a behavioural world populated by human beings these things can significantly influence members’ choices, actions and ultimately, their retirement outcomes.

Superannuation funds need to be aware of how choice architectures can influence their members’ decisions and factor this into their approach when both designing retirement products and presenting them to members.

To learn more about applying behavioural finance in your fund’s response to DDO, you can contact Simon at


The Optimum Pensions Real Lifetime Pension is an investment linked lifetime income stream where the assets stay in investment options managed by the superannuation fund but longevity risk is transferred to an insurer. Find out more Real Lifetime Pension.

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