PC puts spotlight on lifecycle super products

The Productivity Commission said on its third and final day of hearings in Brisbane it will scrutinise the competitiveness and efficiency of lifecycle and retirement income products in its review of the superannuation system.

Productivity Commission deputy chair Karen Chester said the review didn't initially intend to delve into lifecycle products - but seeing that it comprises 30% of MySuper it would be an oversight not to look at it in-depth and see which super funds have made exemplary progress in this area.

She said QSuper is a "unicorn" in lifecycle products as it optimises member and financial advice data over and above what other super funds are currently doing.

QSuper executive general manager of strategy and performance Glen Hipwood told the Commission that modern lifecycle products using more than one cohort factor do not forgo returns to members' working life.

Product needs vary across age and circumstance and so the challenge of default products is how to meet "extremes and everything in between," he said.

"The question is therefore how can we meet our fiduciary  duty in that default environment  if we are not utilising  what we know about the member - age, gender, account balance - to either customise our investment strategy or to devise a retirement income," Hipwood said.

Chief investment officer Brad Holzberger added QSuper undertakes a deep analysis or an artificial intelligence-type approach to its data.

The super fund analyses about 20,000 financial planning records, taking into account members' thoughts, activities and behavioural responses, which is then layered against academic research. This is combined to get a sense of members' risk tolerance, Holzberger said.

QSuper launched its first lifecycle product in 2013 but it is working on an even better iteration, he added.

Holzberger stressed that lifecycle funds are on a continuous improvement path because in 10 years' time, he hopes the industry will come up with even better solutions for members, as this segment of superannuation is "short of anything optimal."

Challenger retirement income chair Jeremy Cooper recently told a Sydney event the government is looking at governance around retirement income and isn't overly concentrating on products, he said.

The Superannuation Industry (Supervision) Act 1993 currently doesn't provide direction or guidance for trustees and super funds when it comes to retirement income.

It is looking to amend the Act to incorporate retirement income covenants so that trustees will be required to develop a retirement income strategy to maximise income over the life of members, manage the risks that might affect the income as well as provide access to capital.

Cooper said about 700 Australians retire each day and by 2030, $1.3 trillion of superannuation will move from accumulation to retirement.

It's important to note that the changes taking place is "not a revolution but an evolution."

The current system was designed for Australians aged 55 to 75 years old living in a different world, Cooper said. Superannuation is now operating in a different world that has to factor in increasing longevity risk and Australians are living "dramatically longer" than superannuation was first designed for, he said.

Read more: SuperannuationQSuperProductivity CommissionBrad HolzbergerChallengerGlenn HipwoodJeremy CooperKaren ChesterMySuperPCSuperannuation Industry Act
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