The annual Principal Global Investors CREATE Report said that while lifecycle funds only account for five per cent of defined contribution (DC) assets in Australia, they are likely to surpass or catch up with the US usage where lifecycle funds account for 30 per cent of asset and 77 per cent of plans.
Principal chief executive Grant Forster told InvestorDaily that lifecycle investment has not had a huge take-up in Australia, but the aging population will see it become a more popular option.
“There has been a love/hate relationship with target date and lifecycle funds in Australia,” Mr Forster said.
“It’s only now that a lot of those early baby boomers are retiring and are going to live into their 80s on average, so that changes the dynamic.”
Mr Forster said [insurance companies] and governments globally have been “personalising risk” for the last 20 to 30 years by getting out of the pension business.
He said the survey results found that with the population aging and living longer, concerns around having adequate funds for retirement has come back into the forefront of the market.
“While the government and [insurance companies] have pushed that risk to the individual a long time ago, in reality individuals were only managing that for five to seven years until they passed away,” Mr Forster said.
“Now they might be looking hopefully at 15 to 20 years, so we’ve got to manage that pot of money at retirement.
“If you have another 15 years to live, you need a product that will take care of your income requirements during that time.”
Mr Forster said it’s important that the financial services industry looks to improve products surrounding retirement.
“It gets back to this concept of the investors not having to make these day-to-day decisions. That’s not what the investor wants to do in retirement ... and it points to the industry coming back with solutions” he said.
“[Lifecycle investment] is really trying to bring back the more simplistic and good parts about defined benefit plans - the investor not having to worry too much about getting money for retirement - and trying to push some of those things in the DC world.”
