For decades, advisers have relied on bonds as the go-to counterweight in a balanced portfolio. But as the correlation between bonds and equities turned positive in 2022–2023, shock ensued; and many investors are rethinking what they thought was a truism.
What do you do when you finish high school? “Go with your strengths,” Peta Nunn’s school careers counsellor told her. So, she found herself in a maths degree at university. But something didn’t feel right.
Do we really want less choice for Australian retirees?
Australian retirees have by and large had their concerns pushed to the side by an industry focused on investments – and the accummulation thereof – as opposed to customer experience. But courtesy of a fresh leak from the Canberra policy sieve, we have some idea of the government’s plans in this area, even as its date with the electorate looms.
While the leaks from the proposal lack detail, what we do know is that the government is sounding out the prospect of a ‘one-size-fits-all’ option for retirees, that would see super funds required to hold a portion of a retiree’s balance in some sort of ‘guaranteed income’ product, like an annuity.
Similarly, there was talk of a ‘single fund for life’ that would see members defaulted into their super fund in accumulation phase and then defaulted into a ‘retirement drawdown’ solution from the same provider.
Borrowing the words of Bec Wilson, founder of Epic Retirement, the issue with these proposals isn’t the focus on retirement, or the need for a level of guaranteed income, but rather the fact that they lean towards less, rather than more, personal choice in retirement.
The problem with these proposals, along with the multitude of opinions, research papers and columns on retirement, is that they tend to be disconnected from the end consumer; that is, the retiree themselves. Few in the industry are better placed to understand the emotional and lifestyle rollercoaster that is retirement, along with the role money plays in this journey, than the financial advice industry.
Having had the pleasure of assisting thousands of families over two decades in the industry, telling them that they will lose the ability to choose for themselves would be among the most concerning parts about retirement. This is particularly relevant in an environment where financial literacy is finally improving and a reasonable level of investment knowledge becoming much more widespread.
What do Australian retirees want? They want transparency, they want personal connection and most of all they want to feel heard when it comes to understanding what their retirement should look like. They want to be able to call someone when something goes wrong, but most of all, they want to know where their next dollar of income is coming from; and what is being done with the life savings they will now rely on for as long as three decades to fund their retirement.
The challenge of course, is that the sheer size and scale of our superannuation industry is such that it has become a quasi-fund manager. That is, the constant inflow of guaranteed super contributions means the focus has always been on deploying more capital into markets, as opposed to managing the drawdown, and the client experience.
Consider someone who earned an average of $100,000 for their entire career, retiring with a balance of $1.5 million. It would only take a 6 per cent fall, or the equivalent of a ‘market correction’ as we in the industry know them (the definition of a ‘correction being a fall of 10 per cent or more), for this family to have seen an entire year of salary wiped out in as little as a few short days.
What happens when this occurs? Any adviser can tell you that there comes a point when everyone says ‘enough is enough,’ and moves back to cash. This is the point at which personal connection, support and a voice on the other end of the phone is essential. Unfortunately, the sheer size of much of the superannuation industry renders this incredibly challenging, and at the very least, extremely expensive.
Will the proposal go some way to solving for this problem? Perhaps. Or perhaps it will just increase the inherent distrust against super and investments amid an ever-growing level of change. I agree that having some sort of ‘guaranteed income’ is central to a fulfilling retirement, but how we get to that poistion is the biggest question.
We tend to forget that superannuation, to most people, has been a mechanism through which to delay current consumption in favour of funding one’s own retirement. To suggest that Australians could be told how much or how little they ‘should’ be spending should be a concern – indeed, a priority – for the entire industry.
