Sunsuper will launch its MySuper product on October 5, introducing a lifecycle derisking strategy for the 55-to-65-year-old age bracket.
The product was designed based on feedback from its members, who said that they wanted their investment risk wound slowly down as they approach retirement.
Andrew Nicholson, general manager of product at Sunsuper, said: “We tested a number of lifestyle approaches, from quite simple to quite complex. Members came back and said they wanted risk reduced as they approached retirement. It is quite conceptually simple for them.”
From October this year, MySuper members will be invested in a lifecycle investment strategy. This is designed so that members are invested in the balanced pool (which has an allocation of approximately 70 per cent to growth assets) until age 55. Once the member turns 55, their balance will begin to transition to the retirement pool, which has an allocation of approximately 50 per cent in growth assets and cash. By age 65, most of a member’s balance is invested in the retirement pool, and some will be in the cash pool, ready for retirement.
The process is innovative claims Nicholson, as it will use Sunsuper’s self-built technology to derisk member balances, giving each their own glide path. Nicholson is also proud that the transition has not forced members to confront investment terminology, such as having to gain knowledge on the difference between risk-free assets and equities. “Keeping it simple is better than talking about risk-free assets”, he says. Simplicity is also translated to fees, which Nicholson says fits with the government’s MySuper philosophy.
Nicholson defended the use of derisking before age 65, as other investors have argued that those with low balances would be better off adopting a high-risk strategy until they reach retirement, as their main income will come from Centrelink.
“This is not about returns, it is about minimising risk. It gives members peace of mind that they are in a less volatile strategy,” he says.
“We will have investment shocks,” he adds, in response to the accusation that some members might miss out on extra growth in a sustained boom.
“Our members will be more comfortable that we have reduced their risk. Members can still invest in Australia shares if they wish. This is an all-season solution for our members, not one that hopes for sunshine for the next 20 years.”
Disengagement and prompts
Part of the logic for adopting lifecycle is that most members are not engaged.
“Superannuation is a product members are looking for others to sort out for them. Many are not as engaged as they should be. It would be great if all our members spoke to our financial advisers at the age of 55. We would love that, but for many they have busy lives and they really want us to sort that out for them.”
However, members will be given two key life-stage prompts to engage with them at certain saving levels.
The first is at 45, when members are given visual representations of the sort of lifestyle they are heading towards in retirement. At this point members may be encouraged to contribute more. The MySuper process now gives them another wake-up call in the form of the letter at 55, which says their investments will be slowly derisked unless they choose otherwise.