Don’t wait for Govt on CIPRs

Superannuation funds should be acting to get ahead of the Federal Government’s timetable with respect to developing post-retirement products, according to an implementation specialist with Parametric Portfolio Associates.

Parametric’s chief investment officer, Paul Bouchey, said it was superannuation funds which should be setting the pace, not the Government.

“Although superannuation funds can follow the Government’s legislative timetable to develop a Comprehensive Income Product for Retirement (CIPR) by 1 July, 2022, that’s hardly an optimal outcome for fund members who have retired or are making retirement plans now,” he said. “They want a timetable dictated by their needs – not Government legislation.

“It will require superannuation funds to ‘get over’ the powerful anchoring bias of an accumulation mindset to design good solutions for retired members and members in retirement-planning phase.”

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Parametric Australia managing director, Raewyn Williams, agreed with Bouchey’s analysis saying superannuation funds should not consider developing CIPRs as a chore but, rather, an opportunity.

Bouchey and Williams said that although there was keen debate about the use of annuities (or other innovative longevity risk pooling solutions) in a CIPR, superannuation funds should not be distracted from thinking about clever ways their CIPR or other retirement solution could achieve their equity exposure.

“Certainly, it’s clear that the investments backing a CIPR will need to have some exposure to equities or other growth assets,” Bouchy said. “Superannuation funds should be looking now for different approaches, such as specific defensive or low volatility strategies and factor-based strategies that use simple construction rules to produce better-than-market income and volatility outcomes.

“Other equity options include emerging markets strategies with good downside risk properties and Australian equity strategies that recognise the value of franking credits to retirees as an additional source of yield while addressing the risks of simplistic franking-tilted approaches.”

Williams suggested that, structurally, superannuation funds should also think about whether segregating their pension assets from their accumulation assets – at least for some asset classes – makes sense.