AUSTRALIA - Super funds are fighting to keep their members after retirement by developing post-retirement solutions, said Mercer.
Fund members approaching retirement age may be persuaded to shift their retirement assets away from their super fund towards products offered by the commercial wealth management sector to meet their needs during the draw-down phase in retirement, said Mercer senior partner, investment consulting Simon Eagleton.
"Super funds are fighting back to keep these members and their assets after retirement age by developing appropriate post-retirement solutions such as income products, allocated pensions and annuities," Eagleton said. "If they don't succeed at this, as member's age and retire some super funds may not be able to maintain the scale of assets required to offer all members value-for-money services."
The post-retirement market in Australia is still maturing, Eagleton added, and he expects some funds to build solutions in-house, although income solutions such as variable annuities can be complicated with non-trivial implications for administration, fund management and underwriting of guarantees, so others may seek third-party providers.
Mercer partner Martin Stevenson said the dominant product in Australia is the account based pension, which allows retirees to draw down with flexibility but does not protect against investment, inflation or longevity risks. However, members are becoming increasingly aware of the risk so the gap for postretirement products is widening, he added.
Stevenson continued: "The average lump sum benefit a retiree is receiving is around A$130,000 ($130,000) which will grow over the next few years - when this hits A$250-300,000 there will be a strong need for income products."
He also said superfunds with negative inflows will look to postretirement products as a strategic way of retaining funds under management.
The Pension Protection Fund (PPF) is consulting on proposals to charge a "risk reflective" levy for commercial defined benefit (DB) consolidation vehicles.
The funding gap across FTSE 350 schemes could be slashed by as much as £275bn if schemes look beyond traditional ways of creating value. Victoria Ticha examines how
There will be "many flavours" of defined benefit (DB) consolidators but consolidation will only be the right answer for a minority of schemes, Alan Rubenstein says.
Work and Pensions Committee (WPC) chairman Frank Field has questioned the regulator on what lessons it can learn from the experience of the Kodak Pension Plan No.2 (KPP2).