Volatility protection could reduce super drawdowns

Superannuation funds could incorporate volatility protection mechanisms into retirement plans to help reduce drawdowns as members have a preference for investments with lower volatility even if it means lower returns, according to a survey. 

State Street Global Advisors (SSGA) latest global retirement report found that 59% of respondents preferred their retirement savings to be ‘relatively lower expected returns but with less change of a loss’, 22% preferred ‘relatively high expected returns, but with higher changes of loss’, and 19% did not know.  

SSGA said that big drops in value had the potential to knock members’ confidence and that “it is therefore important that superannuation funds limit severe drawdowns and that these benefits are communicated to members”. 

Not dissimilar to its survey in 2018, 42% of respondents in 2020 said they were not optimistic about their retirement.  

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The report noted the continued lack of retirement confidence in Australia was due to the COVID-19 pandemic, having no spare money, uncertainty around retirement plans, and a lack of trust in the retirement system.  

“This reinforces the need for saving regular amounts; superannuation funds providing clear member communications to help navigate uncertainty, and regulators enacting legislation to ensure a transparent, efficient, and robust system,” SSGA said. 

Another finding from the report was that 31% of Australians wanted their retirement savings to be invested in companies that treated their workers well during the COVID-19 crisis.  

SSGA suggested that funds speak to their asset manager about how their stewardship activities were promoting good environmental, social, and governance behaviour in response to the pandemic. 

Compared to the rest of the world, the survey found a greater proportion of Australians during COVID-19 had: 

• Checked their super balance more regularly; 
• Switches to lower-risk investments; and 
• Started drawing down early on their super assets.