If you pick up a PDS from everybody in this room or any other fund out there, what do they say for the balanced fund? It’s 3 per cent or 3.5 per cent over inflation over the long-term. After this nirvana, people have been shocked, and they don’t want to see these returns of 5 or 6 per cent or even 7 per cent for shares. Then you have education. “We try to educate members. They trust us in the main, but what they don’t trust is the Federal Government and the Treasury. It should be in the constitution that the Government keeps its messy hands out of superannuation.” AustralianSuper’s Spear questions whether accumulating savings and protecting balances are differ ent objectives. “The aim of a super fund is accumulation and saving, maximising a benefit, whereas some people in some situations want to protect what they’ve accumulated, which is a different objective.” ipac’s Rogers says this separation of saving and protection is not appropriate given the different financial circumstances of members.

“The purpose of saving – even through the accumulation phase – is to be able to go to the market and buy an indexed annuity to maximise a guaranteed amount of income in retirement,” he says. “Some people want to be confident they’ll never run out of money. Others are shooting for glory because they always have the pension to fall back on.” Milliman’s Matterson asks if the concept protecting superannuation account balances should be considered in a similar vein as insurance. “If I’ve got a relatively high account balance, then there’s more incentive for me to find some way to insure or protect that. I’m not suggesting that you protect it by locking it all up in cash, because you need to maintain some exposure to growth assets due to the length of retirement. “We need strategies that stabilise volatility or allow people to be insulated from severe market events when they’re most at risk. When you go through turbulent times, demand for guarantees of one form or another start to increase, despite the price attached to them.” The challenge is to offer fund members the ability to manage these risks cost effectively.

One possible approach is to implement dynamic approaches to asset allocation that are designed to protect members from the impact of a sustained market downturn or increase in volatility, he says. Turning to defensive assets, AMP Capital’s Zavone says the “best market insurance” is to accurately detect value in investments, and to consider the expected future income streams from assets. “Because of the nervousness around equity markets, there’s a lot of money flowing into bond markets, and soon that’s going to evolve into manufactured income. So, if all this money flows into bonds, some years down the track, they won’t be a great defensive asset any more, and the best place to get income may well be equities.” Such defensive strategies are particularly important for AUSCOAL Superannuation, says Colin McGuinness, strategic development manager at the fund, which uses lifecycle strategies throughout the accumulation phase because of the coal industry’s demographics. “It’s highly manual labour and the average age of retirement is a lot earlier, so extending a [growth-oriented investment] strategy may not necessarily be the way for us to go. “In the retirement phase, our membership can be divided into the engaged and the disengaged.