QSuper’s creation of eight different investment cohorts for its members has sparked curiosity and admiration from defined contribution experts in the US and UK.
The Queensland public sector fund is to segment 440,000 default members into eight groups according to age and account balance in May.
The investment strategies for each group will be focussed on an estimated retirement outcome for that segment, taking into account the median projected retirement income including age pension entitlements, salary and contribution rates and retirement date.
Kim Weaver, director, external affairs for the Federal Retirement Thrift Investment Board, which manages US $358 billion for close to five million Americans, described QSuper’s developments as interesting, not least because the Thrift Savings Plan kept an eye out for ideas used overseas that they could draw upon.
The Thrift Savings Plan offers five lifecycle funds that are custom designed to take the same factors being used by QSuper into account, she said.
“Our L Funds are reviewed annually and updated demographic information is taken into account, along with other market factors. The L Funds’ asset allocation is updated as appropriate.”
In the UK, one of largest advisors of corporate plans is seeing a trend towards multiple lifecycle funds.
Paul Macro, UK DC & savings client leader at Mercer, said he knew of a few plans that offered three lifestyle strategies and following recent budget changes which have ended compulsory annuitisation more would follow.
“There has been lots of talk about having multiple default options and to do this, recognition of the types of members that are in the scheme will be necessary.”
He added: “I suspect many trustees will be nervous of making different assumptions for different people – but that as the experience of member behaviour in the ‘new world’ develops over time, this may change.”
Rosemary Vilgan, chief executive of QSuper, said the rise in contributions from 3 per cent to 9.25 per cent and the impact of the GFC presented an obligation to adapt and that QSuper’s move would pose a challenge for other Australian super funds to change too.
“How this customisation is delivered and what it looks like may vary from fund to fund, but that is the point,” she said. “It’s about knowing and understanding your members and their retirement needs and building an investment strategy based on this foundation.”
Vilgan promised the QSuper Lifetime strategy would evolve towards more individual outcomes.
“QSuper’s long-term vision is for every member to have a financial plan in retirement that meets their needs and QSuper Lifetime is a significant step towards that outcome,” she said.