Super funds need to develop strategies to ensure that investment gains enjoyed in bull markets are not given back when the cycle turns, and lifecycle strategies can play a part. Investors are exploring them as an opportunity to protect and to retain members, particularly those on the cusp of retirement or in the early decumulation phase. SIMON MUMME and PHILIPPA YELLAND report on a sophisticated roundtable discussion between superannuation fund CIOs, actuaries and retail platforms.

Wade Matterson,
practice leader financial risk management, Milliman Actuaries Hilary Spear, head of investor education, AustralianSuper Jeff Rogers, CIO, ipac Investment Services Gerard Parlevliet, CIO, Commonwealth Bank OSF John Zavone, head of investment solutions – multi-asset group, AMP Capital Greg Cantor, CEO, Australian Catholic Superannuation Retirement Fund Colin McGuinness, strategic development manager, AUSCOAL Superannuation Craig Turnbull, CIO, Local Government Super Simon Mumme, editor, Investment Magazine Philippa Yelland, senior journalist, Investment Magazine For Wade Matterson, practice leader – financial risk management at Milliman Actuaries, the lifecycle investing challenge is how to design a strategy to keep the upside of investment returns, but also insulate people from the risk of negative returns around that retirement zone. Simon Mumme, editor, Investment Magazine, asked what prompted the industry to revisit its approach.

Matterson’s view is that it’s a combination of changing demographic and market conditions. The Australian market has not had the same type of experience seen overseas, says Matterson. “In the US, they’ve had negative returns over an extended time, and the Japanese market has had it even worse over a longer period. Australians have been fortunate enough that the local equity market has essentially been insulated from the worst of major international events. It hasn’t sharpened the mind, in terms of how we deal with that. “The second aspect is that account balances are still relatively meagre for the vast majority of people. Combined with government support through the aged pension, people are insulted to some extent. There are three major segments: 100 per cent reliant on the age-pension; part age pensioners where downturns trigger a pension increase; and third, self sufficiency. The challenge facing funds is how to adequately design solutions that cater for them” Hilary Spear, head of investor education, AustralianSuper, says the issue is about segments.

AustralianSuper recently reviewed its default investment option, in which 80 per cent of members are invested. “We can’t presume to offer protection at a cost when they (unengaged members) don’t necessarily want that; they want to experience the upside as much as possible. Education certainly comes into it, later on, and it’s certainly part of a very large jigsaw puzzle, and behavioural finance components are a significant part of it. “Loss aversion is very much a factor for that minority of members who are prone to switching, and they’re the ones who are looking for the protection, and they’re probably the market for these sorts of strategies. We reviewed our default option last year and found that based on the modelling and the trustees’ appetite for risk on behalf of the members, we could afford to make the balanced option a default until about age 75, and then de-risk it.” Jeff Rogers, CIO at ipac Investment Services, questions if this approach – in which the majority of members are grouped within one comprehensive asset allocation – is suitable. He says there will be certain age groups where it will work, but there will be other groups for which it does not work.

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