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MySuper needs second-generation lifecycle funds: Russell Investments
Debate surrounding MySuper and lifecycle investing should include the development of second-generation lifecycle funds that can address the income concerns of an ageing population and flaws in current lifecycle investment strategies, according to Russell Investments chief executive Chris Corneil.
Corneil said the current debate around lifecycle funds and MySuper legislation needed to include enhancements to current lifecycle investment strategies to create a second generation of lifecycle funds.
"Significant enhancements need to be made to lifecycle funds to make these strategies relevant to the MySuper debate.
"Russell is looking at a range of solutions to managing the superannuation of disengaged members who are unwilling or unable to manage their investments regularly, as these are the members MySuper is concerned about and the ones the industry really needs to cater for," Corneil said.
He said focus needed to shift from the accumulation period of investment to the 25-plus years of the decumulation stage post-retirement, and to identify the range of possible incomes - not just the average account balance of an investor.
He said this would reflect members' concerns about sustaining their level of income throughout retirement.
Corneil said lifecycle funds should assess external factors such as demographics and financial information in addition to age, acknowledging the effect of human capital on investment strategies.
He said this would overcome shortcomings of first-generation lifecycle funds: mainly the use of age as a blunt instrument to determine a member's asset allocation.
MySuper could then increase the ability of second-generation lifecycle funds to meet investor objectives, he said.
Corneil said default investment strategies did not constitute a "one-size fits all" solution.
He said because different age groups had different risk profiles, spending habits and varying abilities to recover from a downturn, a second generation of lifecycle funds should utilise technology to provide "the flexibility of individual customisation, with the low unit costs of mass production processes".
He added that while historically shares and bonds have been adjusted in lifecycle funds, alternatives such as property, infrastructure and other real assets needed to be considered to create a diversified multi-asset portfolio.
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