Longevity risk solutions key to retaining superannuation fund members

superannuation-fund-members/

26 September 2011
| By Angela Welsh |
image
image
expand image

Institutional superannuation funds should offer longevity risk solutions to retain members, according to delegates at a recent Retirement Income Forum convened by Pimco. 

The forum, held in Sydney and Melbourne, found the consensus fund sector view was for a hybrid longevity risk product. These products combine a guarantee and a separate investment product, wrapped as one single offering to retirees, to provide a more cost-effective solution than those currently available in the retail market. 

A research paper by Tony Hildyard and Sara Higgins of Pimco Australia detailed traditional ways of addressing longevity risk and the Australian market for these strategies. The paper, Addressing Longevity Risk, identified longevity protection as one of the most complex issues faced by retirees. 

"Longevity risk remains the major unsolved problem with growth-based investment solutions conflicting with retirees' heightened risk aversion - that is, lack of certainty," said Hildyard, who is Pimco Australia's head of retirement solutions. 

While retirees with superannuation savings of under $250,000 would have access to the age pension, those with more than that amount would have to consider their options, the report stated. Retirees with more than $1 million in superannuation would most likely be able to address longevity risk via an asset allocation strategy, but might still "bucket" a portion of their assets into a true longevity protection product, the report said.

"Generally, an asset allocation approach has been followed - including the use of income funds or asset bucketing, in an attempt to minimise risks of running out of assets before death - but this approach does not fully address longevity risk," Hildyard said. 

Hildyard conceded that the trend to take up a lump sum on retirement was "an entirely rational reaction" to this conflict. However, he cautioned that such an approach would not be optimal for the retiree and super fund. Hildyard called for an in-fund solution which focused on retiree needs and risk appetite. 

Homepage

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

1 month 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months ago

Entireti has unveiled the new name for the AMP financial advice businesses that it acquired last year....

4 weeks ago

A Sydney financial adviser has been permanently banned from providing any financial services, with the regulator deriding his “lack of integrity, trustworthiness and prof...

2 weeks 6 days ago

Minister for Financial Services, Stephen Jones, has provided further information about the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms....

1 week 5 days ago

TOP PERFORMING FUNDS