“We’re seeing this trend of the self managed super fund emerging, because members are saying: ‘No one’s doing a good job so we want to have our own super fund’. “Has anyone looked through that? What’s the attraction of the self managed fund? Is it something members think they can access through a self managed fund that we’re not offering? Parlevliet points out that without an appropriate suite of solutions, fund members may look elsewhere. “Our big issue might be that when people get to retirement, they’re all going to want to have their own self managed fund.” Offshore funds – such as those in the US, which suffered during the dotcom crash – have already debated the possibility of partnering with insurance companies and other guarantee providers to offer capital protection or lifetime income guarantees, and have identified many of the same issues such as cost, flexibility and control that are currently being discussed in the Australian market. Pointing to these discussions, Matterson says Australian funds should learn from this experience, where approaches are evolving to deal with these issues.

The prevailing trend is beginning with the ability to provide risk management or offer protection within existing fund structures. This then provides greater control over the investment process, and has the potential to reduce the counterparty risk and cost in the event that funds decide to work with a third party to provide a guarantee to certain member segments. “Funds can then say to members: ‘We’re pretty sure that you’re covered, but it’s on a best-endeavours basis’ The challenge then becomes communication. There’ll also be some members who, come hell or high water, want the word ‘guarantee’ attached to their product. So it doesn’t matter what you do, they’ll pay 2, 3 or 4 per cent for that. And you have to almost accept that you will lose those guys, or work with a guarantee provider to develop a solution. The question then becomes: can you deliver 80 per cent of the benefit for 20 per cent of the cost?” Within AUSCOAL, the average default member can receive a fixed rate of return, which can enable them to maximise their claim to the old-age pension. “That’s the best insurance, and the cheapest insurance anyone can ever get.

Maybe the best bet is to provide members with a fixed rate of return through five year bonds, six-, seven or 10 year bonds, knowing that they’re not going to have to vary their returns for social security and therefore maximise their pension.” For Parlevliet, an interesting aspect of lifecycle strategies is contributions and voluntary contributions because the periods when people have more ability to save are decreasing as children stay home longer for tertiary education. “But, one of the periods they can save is when they’re really young and just started working,” he says, “yet all they want to do is spend their money on partying and clothes. If it’s a 40 year savings vehicle, they need to be able to save at the right times and compound interest helps them.” AMP Capital’s Zavone agrees that one of the lessons learnt from this retiring baby boomer generation is that people have not saved enough. “The best bet to ensure you have enough savings in retirement is not going for massive investment plans and taking high equities. It’s really about a savings process throughout your life. “People are talking about retirement solutions now as if they’re different to the accumulation solution.