Fund managers need more information about investors if they are to build products that deliver the best outcomes to Australians in retirement, industry participants said yesterday.
A growing number of industry commentators back the ‘lifecycle’ approach to retirement savings whereby target returns are calculated by determining an investor’s needs well beyond retirement and working backwards.
The strategy could be helpful to millions of Australians who cannot or will not actively engage with their own superannuation investments, a problem the government’s MySuper reforms aim to solve.
However, Russell Investments Australasian chief executive Chris Corneil said age is not the only basis for a lifecycle investment strategy and the industry needs to swiftly develop a second generation of the vehicles.
“Significant enhancements need to be made to lifecycle funds to make these strategies relevant to the MySuper debate,” Corneil said in a report published yesterday.
“Lifecycle funds can prove beneficial for those who are unwilling or unable to manage their investments regularly – the disengaged members that MySuper is concerned about.”
Corneil added that the investment strategy could help protect investors from their own behavioural biases that often lead to selling at troughs and buying near peaks.
Milliman principal Wade Matterson backed lifestyle investment but said it needed “a personalised overlay”.
“My issue around that is it’s more around data. Do funds have adequate data and information on their members to then make [lifecycle] decisions on their behalf? Some funds have better information than others,” Matterson said.
“If we kind of accept that we have to grab people in different cohorts, then the question becomes, ‘How do I identify which cohort you should be in as my fund member?'”
MySuper is part of the government’s Stronger Super plan which aims to whittle away some of the $20 billion in unclaimed superannuation money.
“The fact that we’ve gotten to this point where people can have multiple superannuation funds scattered around the place means we’ve let them down,” Matterson said.
“That has created massive inefficiency within the industry. Addressing that will get a lot of funds and a lot of members to a point where actually they can make a better effort in terms of auto-piloting an investment option for someone as long as they have confidence in the information they’ve got about their members.”
