A key architect of the compulsory retirement savings system lauds its many achievements, stretching from the national economy to the individual. Where it’s double faulting is in serving members – and it needs to be addressed promptly.
With performance and diversification driving demand, these funds are expected to experience four-fold global growth over the next decade to nearly $AU65 trillion.
Funds eschew age-adjusted MySuper defaults
(Pictured: Graeme Mather)
Not many MySuper default options offered by both retail and not-for-profit super funds have sought to tailor the strategies to the needs of different groups of members. An analysis by Mercer shows only 15 of the 82 approved MySuper options have introduced lifecycle attributes to the funds.
Retail and industry funds also took different approaches in their lifecycle strategies, with only retail funds looking to take the member beyond point of retirement with that option.
The study, “Lifecycle Investing: Trends in MySuper”, was distributed last week by Graeme Mather, partner and market leader for Mercer Investment Consulting in Australia and New Zealand.
Mercer says: “The purpose of the paper is not to extend the debate, which has become quite topical in Australia, but to acknowledge there is clearly a growing domestic lifecycle market and to share some of the noteworthy trends that we have observed in this area to date.”
The analysis produced some interesting results, especially the different approaches adopted by retail funds and not-for-profits. For instance, four of the eight retail funds using lifestyle strategies continued these “through retirement” for their members. None of the six industry funds nor the one corporate fund did this. This is surprising given the concern by the big industry and remaining corporate funds about the leakage of their high-balance members to the SMSF market when approaching retirement.
While many of the members in the MySuper default option are likely to be disengaged, it would still be another selling point to show them that the management of their funds would continue to reflect their circumstances, or at least their age, in retirement. Mercer noted that one of the 15 funds added member balance as a consideration, as well as age, in the lifestyle MySuper strategy option. Although the funds are not identified in the Mercer report, QSuper is known to have developed a matrix for its default funds based on age, gender and member balance.
Another interesting difference between the retail and not-for-profit funds is that they tended to choose different approaches in the structures of their offerings. There are two main approaches: to have automatic switching between funds from balanced through to conservative according to age; or to have “cohort” funds, whereby those of different ages go into different funds, which are adjusted over time on a whole-fund basis.
Seven of the eight retail funds elected the “member cohort” approach, but only one industry fund did this. The five other industry funds and the one corporate fund chose the “member switching” approach. This would typically involve the transfer out of a fund option several times throughout the working life, perhaps involving higher transaction costs. The average number of “de-risking switches” envisaged was seven but the maximum was 25 and the minimum was one.
For those which chose age cohorts, based mainly on dates of birth, they also had to make a decision as to how wide a band to allow for each fund. Mercer says typically it is five years, which would mean that average number of age cohorts, of nine, was right for a 45-year working life. However, the maximum number was 19 and the minimum only three.
It was recently announced that Mercer’s own MySuper product, Mercer SmartPath, also adopted a lifecycle approach.
