Drop in FUM for retirement incomes investments

Retail investments have recorded the worst performance across the retirement incomes sector over the year to June 2011, losing more than $10.6 billion in funds under management (FUM).

This represents a fall of 7.2 per cent, according to the Money Management/DEXX&R 2011 Retirement Incomes Survey.

The reasons for the drop could be found in the everlasting market volatility and anxiety around the upcoming legislative changes, as advisers begin to restructure their clients’ retirement income portfolios, according to Equity Trustees head of wealth management Phil Galagher.

“Anecdotally, there has been a lot of internal debate about longevity and how a retirement portfolio should be structured to cope with longevity, and that relates to the mix between a more conservative asset like fixed interest versus a more aggressive growth asset like equities – and the balance between those two,” Galagher added.

“But from our point of view, there is a clear difference between what’s required in the first period in retirement and what’s required in the later years of retirement … and I don’t think the industry has come to grips with that yet,” he said.

The total retirement incomes market has achieved some growth in the year to June 2011, but has lost $7.4 billion in FUM in the June quarter of this year.

Apart from employer super, which has recorded year-on-year FUM growth of 11.6 per cent, allocated pensions have reported the biggest growth of 7.2 per cent.

DEXX&R managing director Mark Kachor said the non-super products will continue to slide until confidence returns to equities.

“Many people who have retired are transferring their super lump sum into allocated pensions, and this is why they are growing,” he said. “But with other products, the reason why the FUM is dropping is because clients are not required to put 9 per cent of their income or put extra money in like with super – it’s outside of that; all the stats say that everything is going into cash or similar,” Kachor.

Top companies operating in the allocated pensions sector include the Commonwealth Bank with almost $20 billion in FUM, BT/Westpac Group on $17.1 billion, closely followed by AMP (including AXA) on $17.09 billion under management.

Others include National Australia Bank, ANZ Group, IOOF Group and State Super, who have also lost FUM in the June quarter.