Solutions to deal with market woes needed

If superannuation savings continue to drop, fund managers and the financial industry will have to start looking for solutions to buffer their clients against market volatility instead of telling them to stay calm, according to the practice leader of Milliman, Wade Matterson.

Matterson made the observation at a briefing where he released the results of a survey showing workers nearing or facing retirement are increasingly worried about their superannuation savings and the risk allocation of their investments.

“It’s pretty clear that the market downturn and its effect on people’s savings is number one on the list,” he said.

There is an opportunity in Australia for fund managers to develop products that would provide a buffer against market risk that could go beyond capital protected investments. The traditional approach to capital-protected products was a hit and miss affair, according to Matterson. Any new products would have to be about capital protection as well as investments.

The survey showed that new cost effective products would be the most popular for dealing with market volatility. Of those who were asked to rate the importance of product features in a new risk-shielding product on a scale of one to 10, 82 per cent rated low fees as eight or higher. A product that protected retirement income from the effects of inflation was the next most popular, with 78 per cent of respondents rating the product as eight or higher. Products that guaranteed a lifetime retirement income, or protected investments from negative returns, were the next highest at 77 per cent. One thousand people took part in the survey.

The survey also showed that of those who had changed their asset allocation to a more conservative mix as a result of market volatility, 79 per cent had changed their allocation within the last six months, compared with 54 per cent within the last year, showing changes to asset allocations continue to rise as market woes continue.