The research paper said the industry’s change in focus from wealth accumulation to providing retirement income has led to the development of a wider range of solutions.
Based on data on the default accumulation options and default pension options of 101 super funds, Mercer found that around half, or 49 per cent, of funds now amend the strategic asset allocations for those members entering the retirement phase.
On average, the research found 6 out of 10 retail funds and 4 out of 10 corporate or industry funds alter their strategic allocation.
Among the 101 funds, the research found 15 per cent offer life-cycle products.
In terms of growth allocations, the research discovered government and industry funds tend to have a higher than average exposure to property and growth alternatives while retail funds have a higher reliance on equities as a proportion of overall growth assets.
Within defensive allocations, government funds and retail funds have a much larger proportion of funds invested in cash compared to industry funds.
Mercer said while post-retirement products could typically be categorised as pure investment-based products and guarantee-based products in the past, recent product development has increasingly blurred the line between these two categories.
“The emergence of products that sit somewhere in between both ends of the spectrum has been a key focus of recent innovations in the post-retirement space,” said the report.
“Much of this innovation is focused on assisting retirees manage longevity risk, the importance of which is becoming increasingly well accepted by the industry.”
The report said due to the “general bias of the Australian market towards investment-based solutions”, post-retirement product innovation has “initially been focused on this area”.
“However, we expect to see more broad-based innovation as the industry continues to recognise that investment solutions alone are unlikely to adequately arm most members against the risks they will face in retirement,” the paper said.
The research report also argued that a “one-size fits-all solution is unlikely to be uncovered”.
“In terms of product innovation, the industry cannot afford to search for a ‘silver bullet’ retirement income solution to meet the needs of all retirees,” said the paper.
“Financial advice, member education and communication” will be crucial for super funds, it said, but argued the government also has a role to play in “ensuring innovation in the post-retirement phase is not stifled by restrictive legislation or the lack of important investment assets such as long-dated government bonds”.
“Continued engagement between the government and the superannuation industry will be important to ensure that innovative ideas are fostered through a post-retirement market that is conducive to the development of suitable strategies and products,” the report said.
