In a new paper titled Rethinking the Superannuation Fund Mission Towers Watson said superannuation trustees must take greater responsibility for ensuring members are aware of potential outcomes and take the expectations of different members into consideration when designing the mission of a fund.
“This could range from a generic default strategy at one end, to a highly customised member-focused strategy at the other,” said the paper.
“The degree of member targeting will be fund specific, reflecting both the capacity of members to alter their retirement plans, and the approach taken to communicate uncertainty to members.”
Towers Watson explained that different members have varying requirements and therefore multiple measures of performance would be appropriate.
The paper suggested monitoring the expected outcomes of the fund relative to the expectations of members which could involve “carrying out regular studies into the retirement incomes expected by different groups and tracking these through time”.
Towers Watson also argued the construction of risk-controlling portfolios should start to recognise the shape of drawdowns in the decumulation phase and look at strategies that may better ‘match’ post-retirement spending patterns”.
“There is still a need to monitor performance and asset management costs on a shorter-term basis to ensure that underlying asset classes meet their performance objectives, and that unskilled managers are identified and replaced,” said the paper.
“What is important is that the results of monitoring are considered in the light of their impact over longer periods of time, for instance at the portfolio and retirement outcomes levels.”
Towers Watson said the information provided to members about their expected outcomes should also be improved.
The paper also argued that members who choose to be engaged should be provided with the tools to help them understand the impact of using the different levers at their disposal, which will enable the design of a “better journey plan”.
