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Mercer calls for review of super default options
Mercer has called for a shift to a ‘whole-of-life’ superannuation investment strategy that would see members adjust their investment strategy to suit their changing life stages.
Mercer said it would like to see legislative change to ensure appropriate investment options for both the working and retirement phases of people’s lives.
It is backed up by modelling that shows 66 per cent of people’s retirement income will come from post-retirement investment returns, whereas 6 per cent will come from contributions and 28 per cent from pre-retirement returns.
Recent market volatility has highlighted shortcomings in the one-size-fits-all approach to default investment strategies, according to Mercer’s regional head of Asia Pacific, Peter Promnitz.
“There is real potential in our current system that super fund trustees will set their default investment strategies with an excessive focus on minimising short-term peer group risk rather than maximising long-term returns,” Promnitz said.
Default options with investment horizons beyond retirement date will ensure members maximise a higher risk appetite in their younger years and older members will have enough to last them well beyond retirement date,” Promnitz said.
Mercer’s report, Securing Retirement Incomes: Risks and opportunities for Australia’s retirement income system in a post-Henry environment, urges the Government to stop ‘tinkering around the edges’ of superannuation and use the Henry and Cooper Reviews as vehicles to make decisive and holistic changes.
Meanwhile, Mercer also recommends that a proportion of super benefits above the tax-free threshold be invested in annuities.
The age pension alone cannot be relied on to guard against longevity risk, Promnitz said.
“A greater range of retirement income products need to be developed to ensure all Australians have increased financial security in retirement and taxpayers aren’t left carrying an unsustainable burden as the population ages," he said.
AUTHOR
Corrina Jack
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