Competition Heats Up For Your Retirement Dollars
Are you among the estimated two million-plus super fund members who will join the ranks of retired members over the next 15 years? If so, you are a potential beneficiary of intensifying competition among super funds to provide your super retirement income.
As Smart Investing has previously commented, it now seems difficult to believe that some of Australia's biggest super funds didn't offer their own pension products until a decade or so ago. This would have reflected the then younger age demographics of their memberships.
How things are changing as a growing proportion of our population ages and retires.
Astute and informed super fund members who recognise their increasingly valued position are perhaps best placed to make the most of it in the final decade before retirement and in retirement.
The latest Superannuation Market Projections report, just published by consultants Rice Warner, forecasts that the number of super fund members receiving a super pension will rise from about two million (at June 2016) to more than four million within 15 years.
And total retirement dollars in super (including assets backing transition-to-retirement pensions) is expected to grow from $631 billion to $1.39 trillion in 2016 dollars over the same period.
Rice Warner's report comments that these figures mean that super pensions will become "even more important" in the competition between funds to retain members. This applies not just in retirement but critically in the lead-up to retirement.
Analysis of 12 million unidentifiable member accounts from 25 large super funds indicates that high-balance members who switch funds in their late forties onwards place a high priority on selecting funds on the basis of their retirement-income products.
To retain members into retirement, the report suggests that funds take such steps as:
- Understand both their retired members and members approaching retirement.
- Understand more about those members who leave their super funds in the lead-up to retirement. Funds should understand where members are going and why they are going.
- Develop retirement-income products that suit their memberships and take into account that most retirees will receive a full or part age pension, which Rice Warner describes as a "Government-backed annuity".
- Focus on investments in retirement products that are likely to provide "healthy but sustainable" income. A challenge is to provide protection from volatility without "locking in an inadequate return".
Rice Warner argues that the "point of retirement is too late" for funds to try to engage members with the merits of their retirement-income products. "Funds need to prepare much earlier, recognising that the larger a member's balance, the more likely they are to move to another fund or an SMSF if their current fund does not demonstrate it can meet their retirement-income needs."
Perhaps the bottom-line for pre-retirees and retirees is to recognise their value as super fund members, to remain well-informed what's being offered in retirement-income product market and to make the most of the competition for their retirement savings.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia.
As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.