Longevity and adequacy in a post-financial crisis world are crucial challenges that supereannuation funds must surmount, according to industry experts. PHILIPPA YELLAND reports.
Australia’s leading academic in the longevity debate, Professor Michael Sherris, says the Federal Government has a crucial role in supporting the development of a life annuity market. “This is due to private market constraints, as well as the capital costs of guarantees, longevity-risk uncertainties, and efficient hedging of inflation,” he says. “The most efficient result will be a public-private model with long-term risks supported by government through offering deferred life annuities.
”The provision of financial advice, often considered as being essential in retirement planning, is a minefield into which only a few funds have ventured, says Robbie Campo, manager –strategy at Industry Super Network. “Limited financial advice is proving to be useful to members with relatively uncomplicated finances, and is also leading to more demand for more traditional financial planning services in the long-term,” she says. Campo is an expert on what has prompted funds to consider offering intra-fund advice and what feedback they have received from members, as well as the problematic issues of liability.
A group of industry experts and analysts, including Jeremy Cooper and representatives of Cbus and Maritime Super, will be speaking about longevity, adequacy and strategies for member retention at the third annual Post- Retirement Solutions for Super Funds conference, run by Conexus Financial, publisher of Investment Magazine, March 10 at the Sofitel on Collins in Melbourne. The retention of members on the cusp of retirement is becoming a major problem for funds, says John Farrington, manager – retirement services at Equipsuper. In 2005, the fund realised that it was losing its high-net-worth members, he says, and set out to develop specific strategies to keep them. These included: deploying individual account managers, full financial advice services through a separate company, running seminars on purposeful retirement and, as an additional sweetener, birthday cards. Farrington says the fund now keeps 85 per cent of its retiring members and 75 per cent of their assets. But the challenge to woo and retain the 15 per cent who do leave still remains.
Jeremy Cooper, Challenger’s chairman – retirement income and former head of the influential Super System Review, says the immediate challenges in managing longevity, market and inflation risks for retirees mean that trustees cannot wait for the government on this. Funds can address these problems for members, who are moving from accumulation and the use of their human capital into the decumulation phase, which relies on their financial capital, he says. Wade Matterson, practice leader, Milliman Actuaries, says the move into providing postretirement services will go well beyond investment products and asset allocation. “Understanding the nature of retirement together with the needs and goals of members will determine who is successful and who is not,” he says. He says funds need to develop a full-service model and compete in an increasingly competitive market. Martin Stevenson, partner at Mercer, says the industry’s mindset must change.