Contributions and asset allocation need personalisation

Optimising contributions and asset allocation can help close the retirement gap in Australia, according to Russell Investments.  

During a virtual roundtable, Russell Investments managing director, Jodie Hampshire said personalising contributions and asset allocation would improve superannuation members’ chances of reaching retirement goals as currently most super funds were using a one size fits all approach which was not ideal.  

The investment firm said accurately optimising voluntary contributions depended on the personal circumstances of each investor and the retirement income they were trying to achieve.  

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Its ‘Making Super Personal’ whitepaper said engagement from members was needed to obtain information to personalise contributions.  

“By focusing individuals on the retirement lifestyle they would like to achieve (rather than complex investment decisions), the entry into superannuation can be significantly simplified and much more engaging,” it said. 

On optimising asset allocation, Hampshire said that most Australians were defaulted into super options that significantly compromised their returns. 

The whitepaper said the one size fits all approach ignored other personal information that could improve asset allocation, such as the super account balance, contributions, and the individual’s retirement income goal. 

“Shifting from ‘one size fits many’ to ‘mass personalisation’ of investment strategy is a real ‘free lunch’. It provides a benefit without an associated trade off. It does that by removing the compromises in the current one-to-many approaches,” the paper said. 

“For example, by optimising asset allocation (removing the compromises of one size fits many approaches), our analysis shows more than two thirds of those analysed would have higher projected retirement incomes, with some incomes increasing by over 30%.” 

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