The market downturn has increased superannuants’ awareness
of market and longevity risks, resulting in a high proportion of fund members
in a recent survey switching to more conservative investment strategies and
also favouring products that combat longevity risk.

The major concern among 49
per cent of respondents to the Retirement Planning: the impact and
opportunities survey, commissioned by global actuarial firm Milliman, was the
impact of the credit crisis on account balances. This was followed by the 30
per cent who worried that inflation would weaken their savings. The survey was
put to 1,000 superannuants aged 45 years or more with balances of $50,000 or
greater, and was conducted by Sweeney Research between September 29 and October
15.

It showed that 38 per cent of respondents had changed the asset allocations
of their super accounts, and that 20 per cent of this number had done so in the
last six months. Of those switching recently, 79 per cent moved into
conservative options. Identifying other concerns, the survey found that 31 per
cent of respondents worried about their financial security in retirement and
that 21 per cent were concerned they would outlive their retirement savings. Super
funds could do more to combat these security and longevity risks, Wade
Matterson, practice leader at the
North Sydney
office of Milliman, said.

“We’re at an extreme where all risk is being taken on
at an individual level. We don’t want to go to the opposite extreme where all
risk is being deferred to institutions, but we want to be somewhere in the
middle.” Survey respondents were provided with a description of a guaranteed lifetime
withdrawal benefit (GWLB), an investment product sold in the US that locks-in
returns at a set level each year.

Used in both accumulation and drawdown
phases, it aims to preserve capital and combat longevity risks. While 41 per
cent of respondents said they would switch to a fund offering this product,
their enthusiasm dimmed when the prospect of an additional cost was introduced.
Only 51 per cent said they would expect to pay for the feature. “It drives home
the fact that in

Australia,
when you’re developing products, fees play a key part,” Patterson said.

Low
costs and capital growth emerged from the survey as the most important features
of superannuation products: while 82 per cent of respondents said low fees were
the most important feature, 78 per cent prioritised protection from inflation. When
asked to assess the quality of superannuation funds, 40 per cent answered their
fund had performed as expected, while 23 per cent said performance was a little
worse than expected and 17 per cent said it had been much worse than expected.

This
compares with the 10 per cent who regarded the performance of their fund as a
little better than expected and the 3 per cent who saw it as much better than
expected. Overall, however, 42 per cent of respondents were fairly satisfied,
and 14 per cent very satisfied, with the performances of their funds. Patterson
said this outcome was probably due to a consistent message from funds and
government, emphasising long-term. “Communication is a part of the response.
But if [the downturn] is prolonged, you need a solution in the long-term,”
Patterson said. See ‘Providing your members the ultimate comfort’, page 26.

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