Liquid-growth strategy key to longevity

Supporting members as they transition into retirement may not be as hard as first thought, according to a new report which suggests funds can provide solutions using their existing retirement products.

The latest Rice Warner Actuaries’ Touchstone report suggests that super funds could be assisting their members by moving away from short sighted peer investment strategies into genuine long-term strategies that are linked to the objectives of the investment options.

While the report said there are many ways of doing this, it also said it was “easier to point out strategies which will not work than give examples of those which will”.

One suggestion was to use a ‘liquid-growth’ strategy, which involves splitting a retirees’ superannuation into two pools of money — one for liquidity and one for growth.

The liquidity pool, which would be invested in cash or similar assets, would be available to meet the drawdown amounts in the first two to three years of retirement.

The growth pool would continue to be invested in a long-term growth strategy, which would be similar to that deemed appropriate for the default strategy for accumulation members.

“The goal is to minimise the need for redemptions to be made from growth assets during market downturns, while keeping as high a proportion as possible invested in growth assets,” the report said.

As well as restructuring the default strategy to separate liquidity and growth requirements, Rice Warner suggests funds could undertake comprehensive member analytics to segment pre-retirees into homogenous groups in order to help them prepare for retirement, and they could provide tools to support individualised advice.