Dealer groups must work on retirement products: Mercer

Pension and annuity products provided by banks and large dealer groups are not being optimised for those moving into retirement, according to Mercer.

In particular, the allocations within such retirement product investments are not being redirected to suit clients’ stage of life, where the focus moves from capital growth to capital retention and income generation, according to Mercer’s head of wealth management for Australia and New Zealand, Brian Long.

Research conducted by Mercer both locally and globally over the past four years revealed asset allocations for clients’ funds both before and after retirement were almost identical, he said.

This may be due to a lack of focus by the industry or a lack of knowledge or education by the members of fund who don’t realise what the outcome can be if they don’t properly structure their retirement investments, Long said.

Long proposed a ‘glide-path strategy’ where a person’s allocations are shifted to become more defensive from 15 years prior to retirement and becomes increasingly defensive as a person gets closer to their life expectancy.

This also meant moving towards higher dividend paying stocks or those with high franking credits, he said.

And while roughly half of Australians indicate that they will move into an annuity product post retirement, research shows that around 94 per cent move into a pension and just 6 per cent take up annuities, he said.

This may be because the annuities market was very complex and hard to explain, Long said. He added that it was also hard to compare products, and there were significant product gaps in terms of what people want and what product providers offered.

With the ageing population and an increasing number of people headed for the drawdown stage, we will head towards a point where superannuation outflows are greater than inflows — although as the superannuation guarantee matures, retirement balances will be larger, he said.

All this means the industry will be forced to respond by creating annuity products that better match people’s objectives, with a new generation of products such as variable annuities, Long said.

Long conceded groups such as AXA had begun offering products with income guarantees or income-focused products aimed at those moving into retirement but said the industry overall, both at the dealer group and adviser level, needed to do more in terms of reallocating assets for retirees and pre-retirees into more suitable asset allocations.