Don't limit lifecycle products to age, says Dimensional

Dimensional has praised the Government for allowing lifecycle options within MySuper products, but warned against limiting them solely to age at retirement.

In a submission to the Parliamentary Joint Commission into MySuper, fund manager Dimensional pointed to section 29TC(2) of the draft MySuper bill which outlines the 'lifecycle exception'.

The section states that lifecycle options can be based on age only, or "the age of members and other prescribed factors in prescribed circumstances".

According to Dimensional, the "other prescribed factors" should include: member salary and contribution rates; personal retirement income objectives; desired retirement age; members' personal investment experiences; and the age pension.

Lifecycle products that only take age at retirement into account, or "target date funds", are limited because they aggregate individuals' assets according to one factor: their retirement date.

"A simple lifecycle product based solely on the age of individual members ignores the fact that members still have individual goals in terms of the level of income they will require at the end of their working lives," the submission said.

Dimensional argued that trustees should not be barred from seeking to personalise the investment process just because a member had selected the default option.

"While our solution still supports the concept of 'auto-pilot' and minimal member engagement, it is designed to more clearly reflect each member's retirement destination and makes adjustments to the 'flight path' when economic or member circumstances dictate," the submission said.