A group of academics are investigating measures of cognitive function that can be applied to gauge the financial decision making of retirees and their capacity to make optimal decisions when running a self-managed super fund (SMSF) portfolio.
Paul Gerrans, associate professor of finance at the University of Western Australia, is concerned at the ability of individuals to make choices on investments, pension products, health and aged care.
The premise for the measure is existing research showing the ability to use learned knowledge improves over time, but the ability to solve new problems declines between our forties and fifties.
It is also prompted by research showing that one in 10 people over the age of 65 have dementia and that diagnosis for the problem after the first display of symptoms can take around two to three years.
Gerrans and colleagues and UNSW have carried out their initial research of members of SMSFs and other superannuation funds and found a link between cognitive abilities and decision making ability including judgement of investment suitability and fees.
They would like to carry out a wider sample of retirees to further develop their measures, but have found it challenging to gain a representative sample in part due to sensitivity of the issue.
This research was presented to the Australian Institute of Superannuation Trustees’ research symposium in Melbourne.
Among the audience was former senator and superannuation minister Nick Sherry, who praised the findings. He said that in all his interaction into other countries’ defined contribution systems, he had yet to see any equivalent work. And it raised the question of whether accumulation funds should be automatically defaulted into a pension payment unless members made an active decision not to do this.
Robin Bowerman, head of market strategy and communication at Vanguard acknowledged the need for the research.
“There is no doubt that a key challenge for the sector will be handling the impact of ageing and health issues and the development of potential pathways for SMSFs to roll back into pooled funds if circumstances require it,” he said.