However, up until now the debate has usually centred on creating the singularly perfect longevity risk product. The reality is that a one-size-fits-all solution does not apply in a market of multiple needs. Different members (and by extension, different superannuation funds) will require longevity products that suit their own circumstances. The longevity solution for a low-balance member, for example, will be different from that for a high-balance member. Likewise, some funds may be happy to accept the risk of an insurance-based solution, whereas others will prefer a more market-based solution. There is an opportunity in our industry to stop trying to convince funds that there is a silver bullet, and start working on solutions that bring together the best ideas across the entire industry.
Super fund trustees need to ask how they can piece these different longevity risk products into a coherent solution suitable to their members. It’s also clear that managing longevity risk should start 10 to 15 years prior to retirement, when the largest amount of money is at risk, rather than at the end of working life. It is during this period where we have often failed to meet the expectation of members when major market downturns have significantly eroded their super balances. The industry has the innovative tools at its disposal – such as options strategies, downside protection and dynamic asset allocation – to de-risk portfolios in smarter ways and when it really matters for members. Now we have the opportunity to move from a one-size-fits-all approach, to cost-effective retirement outcomes that meet each member’s individual circumstances and objectives.
