Superannuation focus must move beyond accumulation
New research undertaken by PIMCO Australia ahead of its second Retirement Income Forum has reinforced the degree to which the financial services industry needs to come up with post-retirement options.
The research paper, which examined the Australian post-retirement market, confirmed a significant gap exists with respect to longevity risk management.
Commenting on the research, PIMCO country head Tony Hildyard pointed to the degree to which the Australian superannuation system had been focused on accumulation.
"As an industry, we've now had 20 years of compulsory savings, but super funds were really only ever set up to help people accumulate," he said. "And over that period, super funds didn't really want to deal with the retiree; they moved everything to member choice, and they were quite happy to see people take their money when they retired so that they could just focus on the accumulation role."
"But what's happening now is that you're getting this big demographic bubble that's getting close to retirement, and there's been a realisation that the focus has, to this point, been on accumulation and that it has to change."
Hildyard said to date super funds had been gearing their investment theories around getting the best long-term outcome and that, on average, such an approach had worked.
"They've taken a view that having a lot of growth products is going to give you the best longevity protection because, in the long run, you'll get growth which will allow you to have money in retirement if you live a long time," he said. "But the problem is that when you retire, you don't have a regular income - your tolerance for risk disappears or reduces and you can't take the uncertainty of an average outcome."
"You can't be in a situation where you've got a 50 per cent chance that you'll have enough money to retire on."
On the back of behaviour studies that had been run at PIMCO's last Retirement Income Forum, Hildyard said when faced with such uncertainty, retirees' responses had been quite logical.
"We found that they're very risk averse, they want income certainty, they want control of their assets, they're very frightened of running out, and the volatility of a traditional account-based pension just scared them off," he said. "They did what is actually very logical in that scenario, and took a lump sum, went into retirement, and then spoke to retail advisors as they required further assistance."
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