AUSTRALIA - Credit Suisse Asset Management (CSAM) will soon introduce a Term Allocated pension as part of its newly launched MasterWrap.
The product, set for launch in October, will be cost effective with a maximum fee of 0.45%pa sliding down to 0.05%pa for larger accounts, the firm said.
“There are two fundamental questions; are these new products actually good for clients? And what should a client’s investment strategy look like within the new Term Allocated pension structure?” head of distribution at CSAM Australia, Brian Thomas, commented.
“To evaluate Term Allocated pension strategies at a deeper level, we’ve partnered with some of the best minds in our industry – Michael Rice from Rice Walker research and Rashmi Mehrotra at Mercer Investment Consulting.”
Consultancy firm Rice Walker said there were two defined groups that could benefit from Term Allocated pensions: clients with lower super entitlements, to obtain a full or part age pension in return for the relative inflexibility of Term Allocated pension compared to an Allocated pension or Cashed Lump Sum strategies and clients with larger balances over the lump sum limit, as they avoid paying taxes on their higher benefits.
But these clients should remember their income streams cannot generally be cashed in like Allocated pensions, Rice Walker added.
“Unlike a life annuity, the client’s income may run out before they die, and this is exacerbated for Term Allocated pensions when the term is fixed on purchase,” Rice said.
Mehrotra said Mercer’s long-term forecasting tool suggested a portfolio with at least 35% and preferably 70% allocated to shares and property would be the best option.
“Whilst pension payments could be somewhat volatile in a Term Allocated pension, many people will take an allocated pension alongside their Term Allocated pension,” Mehrotra said.
“To smooth income the client could vary their allocated pension between their minimum and maximum each year to account for the variable nature of the income from the Term Allocated pension which they effectively have no control over.”
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