RIC could impact accumulation phase

The Retirement Income Covenant (RIC) could impact how investments are structured in the accumulation phase of a member’s superannuation, according to Mercer.

Speaking at the Post Retirement Australia conference, Mercer senior investment consultant, Emily Barlow, said the accumulation phase for superannuation funds remained critical.

“The biggest determinant of whether a strategy will be successful is if the balance available at the point of retirement is sufficient and therefore, the accumulation strategy remains critical,” she said.

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“This means we need to stop thinking about accumulation and retirement strategies as separate solutions and focus more on whole of life solutions that can support the overall objective of the retirement system, as outlined in the recent retirement income review, which is to deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way.”

The new obligations expected to start on 1 July next year would oblige super trustees to offer strategies that help retired and retiring members maximize their retirement income, manage the risks to the sustainability and stability of retirement income and flexibly access their savings during retirement.

Barlow said any changes to risk objectives or any new insights gleaned, or behaviours found out from the development of retirement strategy as a result of the RIC should be considered as part of a member’s accumulation strategy design.

“If you're driving members to take different actions or do things differently in retirement, it will impact things like time horizons, sequencing risk, liquidity needs and risk tolerances, as members approach retirement,” Barlow said.

She said members would also need to consider how objectives and risks change over time and incorporate those considerations into investment strategy design.

“There are a number of important characteristics that change through time that do need consideration when designing an effective default investment strategy, but depending on the characteristics of your membership, there are different ways to solve for these changes,” she said.

“Lifecycle strategies can be a great way of balancing these changes in risks, particularly when you want to minimise the distribution of outcomes in retirement.”

According to Barlow, behavioural factors should be taken into consideration when designing default strategies.

“Investing is not a purely rational exercise. Behavioural factors do need to be considered in order to achieve the best outcomes for members, but communication and engagement also plays a critical role, particularly for non-advised members,” she said.

Barlow said the process of de-risking strategies would not always negatively impact retirement outcomes.

“It is possible to de-risk strategies without negatively impacting retirement outcomes if you take enough investment risk early on, and do not de risk by too much or too soon,” she said.


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The only thing lifecycle / lifestage investments do is punish those with lower balances who join funds later in life. Most retirees would be shocked to know that at age 65 you get lumped into a bucket of 50% plus junk fixed income products yielding a handsome 1-2% p.a. And that’s supposed to fund them for the next 20 years?

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