Fix lifecycle investments, don’t ban them

While the Productivity Commission (PC) has taken a negative view of lifecycle superannuation products, they should not be dismissed out of hand, according to actuarial research house, Rice Warner.

In an analysis published this week, Rice Warner has maintained that not all lifecylcle products are created equal and that the results of the PC’s modelling are a symptom of design, not an encumbrance of the concept.

It said that, on this basis, it did not believe the PC’s findings should be allowed to result in a ban on lifecycle investments.

“Arguably, a lifecycle product with a full allocation to growth in the formative years, de-risking to the ‘more appropriate’ balanced fund supported by the PC ten years out from retirement will produce superior results, with only a marginal increase in risk for the member,” the Rice Warner analysis argued.

VIEW ALL

View all

“Alternatively, members could move money into a cash account for any lump sum required at retirement and the first year’s pension payments,” it said.  “This will allow them to keep high levels of growth assets as they will not need to draw down on the main account, so they are immunised against a market shock at the time of retirement.”

The Rice Warner analysis suggested that technology, particularly improvements in administration and member services, were driving a trend towards smarter, more personalised defaults and that some funds were already providing or considering lifecycle products that varied with balance and age.

“Access to more data will allow funds to segment membership into homogenous groups using age, gender and account balance as relevant factors,” it said.