The Global Financial Crisis (GFC) never happened in income terms. That’s the new finding from QSuper that’s causing it to rethink the way it communicates to members.
Brad Holzberger chief investment officer at QSuper, has described the find as “astonishing”.
“If we’d known this, we would’ve communicated it very differently to members at the time,” he said at an Investment Management Consultants Association briefing.
The majority of members’ retirement incomes faced little to no dip throughout the Global Financial Crisis (GFC) when calculated to include increases in Centrelink benefits and the net effect of long term real interest rates over the period, the fund’s research shows.
Taking this into account, QSuper calculates the total retirement income of a member with $420,000 in the Balanced Option was “stable” and is now 23 percent higher than 2006.
“Asset returns matter, but not as much as we think,” said Holzberger. “We talk endlessly about equities, but not interest rates. It’s only half of the equation… Real interest rates that matter more and we, as an industry, are not placing enough emphasis on their real effect.”
Holzberger’s comments come as QSuper shifts 440,000 default members, with about $23 billion in assets under management into eight groups, with separate investment strategies based on nominal risk appetites and projected retirement income, defined by the members’ age and account balance, an initiative calledQSuper Lifetime.
It is a move that’s prompting QSuper to change the way it communicates with members, switching from a focus on asset returns and the Reserve Bank of Australia’s (RBA) official cash rate, to retirement income.
“It’s just the beginning,” said Brad, “but what we’re finding is that members understand this better than when we say, ‘our goal is CPI plus four percent’. When we say instead, ‘you’ll receive 70 percent of your income in retirement’ the lights start to come on.”
He added, “Annuity rates go up and down but it doesn’t matter. All that’s worrying our members is ‘when do I annuitise?’
In his presentation, Holzberger questioned whether the take-up of self-managed super funds would have been so great had the stability of members’ retirement income been better communicated.
In the wake of the GFC, the superannuation industry saw the emergence of about 134,000 new Self Managed Superannuation Funds (SMSFs) from 2009 to the end of 2013 according to Australian Taxation Office (ATO).