Superannuation funds need to focus less on the investment returns they are generating and more on what matters most to their members — the level of income they can expect in retirement, according to a new analysis released by Mercer.
The Mercer report, Retirement Income: A framework for a complex problem, claims that just as importantly, superannuation funds need to be able to test retirement income strategies against their members’ retirement-based objectives.
According to the Mercer Principals who authored the report, Jacki Chorazy and JP Crowley, the entire superannuation industry, not just pockets, has to shift its focus from wealth maximization to investment objectives based on members retirement income needs and expectations.
“The development of new innovative retirement income solutions remains absolutely critical, but it’s only half the battle,” Chorazy. “Unless we develop clear retirement income objectives and a strong framework for comparing different products and solutions, it will remain very difficult to confidently determine the strategies and products that best meet the needs of retirees and the industry is unlikely to solve the retirement conundrum we face today.”
Crowley said that defining retirement income based objectives as opposed to simply aiming to outperform CPI plus a margin was not a simple task and this complexity had stifled innovation.
“Our framework and modelling cuts through the inherent complexities in the retirement phase of super. It allows us to test the efficacy of different retirement strategies against criteria we know is important for retirees,” he said.
Mercer’s Retirement Income Framework combines member outcome based investment objectives with tools to assess potential retirement income products and suites of products against a member’s expected income in retirement. The framework is based on three pillars that are fundamental to the analysis of the retirement phase; Adequacy, Sustainability, and Behavioural Finance.
