Opportunity to mitigate retirement risk

Most financial advisers are not doing anything for clients in terms of retirement specific products or solutions as only 11% are using longevity products for retiree clients, according to Fidelity.

Fidelity head of client solutions and retirement, Richard Dinham, said there was an opportunity to improve outcomes with fit for purpose investments, especially given the introduction of the retirement income covenant next year.

These were investments designed for retirement and would mitigate risks associated with retirement.

Dinham pointed to research that found 11% of advisers were using the same investment approaches for retiree clients as non-retiree clients, 46% used conservative asset allocation, 50% used a cash bucket, 26% using income asset allocation, 38% used income products, and 11% used longevity products.

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“Fit for purpose investment does need to mitigate the risks that are normally encountered with investing in markets. Risks such as sequencing risk or market risk, inflation risk, and then, of course, longevity risk – the risk of outliving your savings,” Dinham said.

“Fit for purpose investments need to provide the right sort of outcomes but also help mitigate those risks in some way, so that members can achieve the right sorts of outcomes through time.”

Pointing to MYMAVIN’s whitepaper commission by Fidelity, Dinham said meeting retirement needs could be accomplished through:

• Modular building blocks that were blended for each superannuation cohort;
• Each building block was fit for purpose and designed for retirement;
• Similar solutions given retirement complexity was overwhelming for pre retirees; and
• Flexibly as retiree needs changed over time.

“Retirement is a stressful life event and a lot of complex emotions are around that. Flexibility is key and, focusing on that confidence to spend is something that's really coming out in the industry at the moment,” he said.