Longevity insurance should be offered by super funds along with death, TPD and salary continuance, according to Greg Cooper, CEO of Schroder Investment Management.

The post-retirement shortfalls that loomed for most retirees were so severe that the super industry had to consider options that not only insured for death but also for living too long, so that “for $1 a week, members could insure against their longevity risk”, he said.

The most productive age-group – those aged 30 to 64 years – had already peaked as a percentage of the population in the global developed world and this would likely hit equities’ value over time, he said.

“There’s a very high correlation between an increasing number of net-savers in the 30 to 64 age group, and a rising PE ratio”, he said.

In Australia, 47 per cent of the total population was aged between 30 to 64 years, but this figure would drop 3 per cent in the next 20 years.

The figures were even worse for the US (from 46 per cent to 41 per cent) and Japan (from 48 per cent to 43 per cent).

Cooper will be speaking at the Post-Retirement Conference on Thursday, March 10, at the Sofitel on Collins in Melbourne.

He said that, with fewer workers in the financially productive part of their life, it would be very hard to grow GDP and this could affect prosperity overall.

In the very short-term, the increase in the Super Guarantee – from 9 per cent to 12 per cent – may boost the equities’ market, but any effects in the longer-term would be overshadowed by the ageing of the population.

These demographic changes demanded that super funds completely revamp the typical growth-fund approach “because many Australians face the very real risk of outliving their super funds”, Cooper said.

“Retirees needed to reduce negative volatility, particularly in the early years of retirement because the order in which you receive returns is crucial,” he said.

The difference in outcomes between, say, earning 10 per cent for 10 years then 5 per cent for 10 years versus the reverse order could be massive when retirees were in the drawdown phase – as much as a 300 per cent difference in the terminal value after 20 years.

“Most pre-retirement products are not suitable, nor is risk-parity nor target-date/lifestyle. They completely and utterly miss the point – just as MySuper misses the point.”

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