Post retirement products aren’t mission impossible, says Russell


There is no one right post-retirement solution for all superfunds according to Russell Investments.

The global asset manager says building a post-retirement solution is a complex task for funds, due to the numerous variables unique to their member profile and business objectives, but not impossible.

In the new paper Retirement Solutions: A Roadmap for Super Funds, Russell sets out a defined series of six steps funds can take to develop suitable post-retirement solutions, taking into account variations in member needs and circumstances, plus the fund’s objectives.

Russell Investments Australasia CEO, Chris Corneil said: “Funds can’t afford to wait for the answer to post retirement products to just magically appear. We have an aging population, quickly approaching retirement and current offerings aren’t going to meet the challenge. But despite that imperative there is no clear market direction. Different organisations are proposing often conflicting solutions. For example some organisations are arguing for more equities in retirement to provide growth whereas other organisations argue for bonds to provide protection against adverse markets. This paper is designed to provide a framework for funds to find an answer to those conflicting messages and offer members a new breed of solutions that will provide acceptable post retirement outcomes,” he said.

Russell’s six steps guides superfunds through; understanding the membership base; articulating the fund’s philosophies; identifying objectives and strategies of the retirement solution offering; evaluating current and needed organisational capabilities; determining required components of a solution and how they fit together and finally the implementation – selecting providers, execution, monitoring and reviewing.

Mass customisation – the minimum standard
While the roadmap suggests that there isn’t a single right answer for all superfunds the paper draws some important conclusions as it works through the six steps.

One of the critical areas Russell says funds need to respond to is offering a tailored approach to asset allocation for a large number of individuals, or mass customisation. Mass customisation involves using members’ individual goals and objectives, spending needs, account balance and risk tolerance as inputs to arrive at tailored investment solutions for each individual member.

Tim Furlan, Director of Superannuation at Russell Investments said: “We believe mass customisation is the minimum standard of asset allocation advice that funds should deliver and members have the right to demand. Many of the differences in views we encountered when developing the guide weren’t because some people were right and others were wrong. But because different solutions are appropriate for different retirees depending on their circumstances. Mass customisation is the way that we can deliver solutions that are right for the particular circumstances of individual retirees in a cost effective manner.”

One solution Russell is presenting to Australian clients is the Russell Adaptive Investing (RAI) methodology for creating customised solutions for members on an individual basis. Russell likens the RAI methodology to a ‘second generation lifecycle approach’, designed to give members an optimal asset allocation. An important part of this approach is the recognition that simple and single asset investment solutions will be inadequate, and that a multi asset approach needs to be adopted to address post-retirement income needs.

Using member data normally held on an administration system, the methodology adapts to market impacts and each member’s changing needs and circumstances, delivering a personal portfolio on a scalable basis.

“There has been resistance to these types of strategies due to perceived implementation inefficiencies but we’d argue it can be implemented effectively and efficiently. Both the roadmap and RAI recognise that we need to put member’s needs first by looking at each member individually to adequately meet their income issues. The focus on asset allocation doesn’t mean that we’re ignoring the risk of outliving your savings. What we found is that investment risk overwhelms longevity risk early in retirement, so investments are where we need to start. ” Mr Furlan said.

In conclusion Mr Corneil said: “An individual’s retirement outcome isn’t solely determined by their account balance on their last working day. According to Russell’s 10/30/60 Retirement Rule*, as much as 60% of investment earnings are generated in the post-retirement phase, so the key point we’d stress is – the post retirement phase is too important to be sidelined due to perceived complexity. Implementing appropriate solutions isn’t as hard as many believe and it’s something we as an industry have to do.”

*According to the Russell 10/30/60 Retirement Rule, the sources of your investment earnings during retirement approximately follow the following breakdown: 10% from money saved during working years, 30% from the growth of savings before retirement and 60% from growth that occurs during retirement.

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