POWERED BY MOMENTUM MEDIA
The challenge of predicting life expectancy
Superannaution funds relying solely on life expectancy could mean 50% of members outlive their retirement savings, according to a panel.
Speaking at the Australian Superannuation Investment conference, held by the Australian Institute of Superannuation Trustees (AIST) in the Gold Coast, a panel discussed the difficulties of creating a retirement decumulation product when they didn’t know for how long members would need the money.
“If we only calculate based on life expectancy then 50% of members could outlive their savings. Success would be spending all their super and having the last dollar drawn out just before their death,” said Simon Brinsmead, general manager for institutional partnerships at Challenger.
“There is a paradox where people have lower retirement incomes than they could have and that gap needs to be filled between how much they have and how much they spend.
“Tools can only go so far and people won’t necessarily use them.”
Ruvinda Nanayakkara, manager of product and innovation at Spirit Super, added that many members did not feel confident to spend in retirement as they were worried they would run out of money.
Brinsmead said a better method would be longevity protections where a super fund was able to pay out the promised income to members regardless of mortality as it was backed by a specialist insurance.
Meanwhile, panelists discussed what they would to see from the Quality of Advice Review for the super space. All felt the regulatory uncertainty was hindering the funds as they were unsure what guidance or advice they were able to offer members.
Nanayakkara said: “It is difficult to offer good advice to members because we know most go into retirement as a household but we are only looking at one member which doesn’t give us the whole picture. Unless we can take the whole situation into account, how can we provide better guidance for members?”
“There is uncertainty around where the line is, if you know where the line is then you can play the game, if we have clarity around how far we can go then we can deliver that without fear of the regulator,” added Richard Boyfield, partner for strategic advice and policy leader at Mercer.
AUTHOR
Laura Dew
Laura Dew is editor at Super Review. Prior to joining SR, she spent five years working at Investment Week in the UK covering asset and wealth management.
Recommended for you
Jim Chalmers has defended changes to the Future Fund’s mandate, referring to himself as a “big supporter” of the sovereign wealth fund, amid fierce opposition from the Coalition, which has pledged to reverse any changes if it wins next year’s election.
In a new review of the country’s largest fund, a research house says it’s well placed to deliver attractive returns despite challenges.
Chant West analysis suggests super could be well placed to deliver a double-digit result by the end of the calendar year.
Specific valuation decisions made by the $88 billion fund at the beginning of the pandemic were “not adequate for the deteriorating market conditions”, according to the prudential regulator.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.56 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
31.06 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.81 3 y p.a(%)
