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Australian super academic to testify in US pension hearing
An Australian academic will warn of the dangers of life cycle funds at a US Government public hearing on pension funds in Washington this week.
Professor Michael Drew, a superannuation specialist from Griffith University, will testify at the hearing this Thursday. He was invited by the US Department of Labor and the Securities and Exchange Commission to provide testimony on target date investment funds, which are also known as life cycle funds. This type of investment method uses an investor’s age as a guide to the level of portfolio risk, a statement from Griffith University said.
Professor Drew, along with his colleague Dr Anup Basu of the Queensland University of Technology, have extensively researched investment methods used by superannuation funds, including assessing more than a century’s worth of financial returns.
The pair’s research found that target date or life cycle investment methods had the potential to harm investors.
“Our research suggests that simply switching asset allocation on the basis of age may lead to adverse retirement saving outcomes,” a statement from Professor Drew said.
“Given the huge falls in investment markets in the wake of the global financial crisis, why would, say, a 45 year old investor switch out of equities today, thereby crystallising losses, simply on the basis of a pre-determined or ‘autopilot’ investment setting?”
Professor Drew argues that key decisions such as this require consideration of whether the investor is on track to reach their retirement objective. At the hearing on Thursday he will argue that a method based on an accumulation target is a more prudent approach.
“The next generation of lifecycle funds will link asset allocation to an accumulation target, not simply blind switching on the basis of age. The inclusion of a feedback loop, related to the accumulation target, is critical to investment success,” Professor Drew said.
AUTHOR
Mike Taylor
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