Defined benefit outperforms defined contribution: PIMCO
Defined benefit (DB) default funds outperformed defined contribution (DC) default funds by over half a per cent per year over the past 15 years, with less volatility, according to global bond fund manager PIMCO .
Although they have fallen out of favour in Australia, DB funds have outperformed DC funds by 0.57 per cent per year for a cumulative total of 9.12 per cent over the past 15 years, according to PIMCO research paper 'Defined Contribution Funds: Target setting can pay off'.
This demonstrates the benefits of an investment approach with a clearly defined target, or minimum required internal rate of return, in achieving superior investment returns, said PIMCO account manager Sara Higgins.
"Research suggests that a focus on target setting for overall portfolio performance and risk outcomes leads to better performance. We need to think about the objective of a super fund to determine what constitutes a good outcome," she said.
A desired outcome could be the likelihood of meeting a replacement income target for a certain proportion of members, based on liability that lowers the level of risk as it approaches the target. "This adds to the discussion around the evolution of a dynamic target date or lifecycle approach," Higgins said.
Recommended for you
As the industry navigates the fallout from recent product failures, two major AFSLs have detailed their APL selection process and relationship with research houses, warning a selection error could “destroy” a licensee.
The impending retirement of financial advisers in their 50s could see the profession face significant succession challenges over the coming decade and younger advisers may not be the answer.
With a third of AFSLs being solo advisers, how can they navigate key person risk and ensure they are still attractive propositions for buyers when it comes to their succession planning?
A quarter of advisers who commenced on the FAR within the last two years have already switched licensees or practices, adding validity to practice owners’ professional year (PY) concerns.
