Superannuation could benefit from a shift in perspective

As Australia’s Baby Boomer generation continues to retire, the country’s superannuation system enters a drawdown stage. While super funds have focused on accumulation, new legislation will make it clear that their purpose is to provide retirees with income. Under that premise, Milliman’s Jeff Gebler explains why a new retirement consultant “with a new skill-set focused on the implications of drawdown” is needed.

The following excerpt highlights the necessary skill-set.

The modern retirement consultant will need to add and co-ordinate a broad mix of skills to meet the increasingly complex needs of the superannuation industry, including:

Actuarial

Funds have an increasing need for actuarial skills which can help them model member behaviour, changes in legislation and the impact of the Age Pension, risk management strategies, and post-retirement product design.

Data scientist

The business world is now awash with information thanks to advances in technology and affordability. The data scientist can analyse and turn this ‘big data’ into practical insights in areas such as membership, investments and risk.

Investment management

Funds and asset consultants have tended to focus on long-term returns generated during the accumulation phase. However, changing demographics and legislation suggest funds should increasingly focus on the risks of drawdown such as volatility and potential capital losses. With this comes an expanding list of relevant asset classes, many of which (such as derivatives) are traditionally beyond the expertise or depth of existing asset consultants.

Behavioural finance and communications

Funds need to design their products and services taking into account the behavioural tendencies of older investors. For example, financial literacy scores naturally decline by about one percentage point each year after age 60 while older investors are more prone to ‘loss aversion’ than younger investors.

Digital

Older investors are highly engaged with their super, including through digital channels. Automated-advice provider Decimal recently released research showing that older investors were the most active users of its enterprise financial advice service.

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