The cost-of-living crisis is having a number of observable effects on the behaviour of fund members nearing retirement, including an increasing propensity for them to delay retirement to build up their savings.
NGS Super chief executive Natalie Previtera says another phenomenon is beginning to emerge, namely, an increasing incidence of retired members returning to work, fearful that the rising cost of living means their retirement savings won’t last as long as they initially believed.
Previtera says the prospect of generating additional income in retirement may be appealing, but it’s not a move a retiree can easily make without adverse effects on things such as Age Pension entitlements – without proper advice and guidance.
Previtera says access to advice is a critical pillar of support for retirees considering this move. Advice can cover “all the basic [issues] that seem like they’re common sense, around creating a budget and figuring out how much you need and that type of thing,” as well as potential social security issues and taxation consequences.
Previtera says the unexpected issues facing some retirees now wanting to return to work underlines why financial advice must be integral to a fund’s support of members, even for a small fund, such as the $15.5 billion NGS Super, which has 114,000 members, with an average age 46 and an average accumulation balance of about $116,000. Its membership is predominantly female.
While some of its larger counterparts continue to grapple with their obligations under the Retirement Income Covenant, including the role of advice in an effective retirement income strategy and how to structure an advice offering, Previtera says that for NGS it was “a no-brainer to just go head-on into the Retirement Income Covenant”.
“We are well progressed, particularly with the launch of the Easy Default [retirement product],” she says.
“That’s what we’re here for. We’re actually finding we haven’t done a lot of marketing of it, but most members are actually converting into that product.”
Classic bucketing
When a member moves into the product, about 12 per cent of capital is held in cash and term deposits, and the balance is in the NGS Retire Plus strategy. Living expenses are drawn from the cash and TD component, with the higher-growth Retire Plus strategy designed to generate higher long-term returns and to top up the cash and TD component as required. It’s a version of the classic income “bucketing” strategy.
“It’s got quite a lot of growth and income-generating assets that sit behind it, but we also recognise longevity plays a role,” Previtera says.
“Right now, our advice team can advise on an annuity that’s on the [approved product list], but we want to make it again easier for people who, just for their own risk appetite, want to put longevity [protection] on it.
“We’re going to have that in place by the end of the financial year. We will be issuing an RFP very shortly for a longevity product. There’s some really good stuff out there so we’re going to be spoiled for choice.”
Previtera says the presence of longevity protection is as much about the psychology of members as it is about their actual financial needs.
“We believe in it more from a behavioural perspective, rather than a necessarily account balance perspective, because we know that the age pension, for example, plays a role for some people,” she says.
“And then on the other side, if they’ve got big enough balances, they may not need that longevity solution because of the way that it will be funded.
“But there are just some people, because of their risk appetite, no matter what their account is, big or small, they want the security of a longevity product.
“That has been on our retirement journey. The thing that I have found so incredibly interesting, because you’re really managing a behavioural aspect rather than a financial need.”
Previtera says advice has been integral to NGS’ service to members “certainly for as long as I’ve been here, which is six years, but a lot longer than that”.
“The thing that makes us different, and the reason our members trust us, is that personalised service,” she says.
“When you’re talking about people’s retirement, they need really good quality advice and access to it, and it’s got to take a number of different forms. So we have always had that available. It’s always been part of our offer.”
Pressure from multiple directions
Previtera says the variability of funds’ responses to the RIC is understandable, given the pressures they are under from multiple directions, but “that’s what it takes to be a super fund today”.
“There are regulatory pressures, there are investment pressures. It comes from a range of different areas.
“Trustees have to decide what they’re going to invest in. We’ve never tried to be bigger than we are or different to what we are. We know who we are, we know why we’re here, and it’s to serve our members, and if we try to stray too far from the course, that’s when you get lost.”
Previtera says that different funds are at different stages of their journey, “and probably what they’re prioritising is different based on the younger membership”.
“But I think what you can’t take away is the fact that the retirement covenant focuses on advice and education, and that’s how we’ve applied it,” she says.
“Yes, it’s got a particular lens to an older set of members, but we’ve got to be engaging with our members as early as possible to at least understand the key things about their balance and growing that into the future.”
She says the demographics of the NGS membership meant “we weren’t going to kick this can down the road, because our members needed a good quality product now”.
“We’re very clear on why we’re here and it’s looking after our members retirement,” Previtera says.
“There’s no bigger responsibility than that.”
