Super policy shifts and the retirement roadmap

--  |   15/11/2018 Text size  Decrease  Increase   |  
email_fwd
<p><strong>Glenn Freeman</strong>: Now, Robin, in talking about what you describe as a retirement roadmap, you are speaking about the policy changes in the context of Australia's aging demographic. What are the key points that you are covering there?</p> <p><strong>Robin Bowerman</strong>: Well, I think, obviously, the superannuation system is a great system on any sort of global measure. Could it be better? Yes. But the accumulation part of the system, we would argue, is very well thought through, it is mature, people understand the 9.5% default, et cetera. When it gets into the transition to retirement, to the spending, the decumulation part, we think there's still plenty of work to be done there on a policy level to &ndash; like, what are the right spending levels for people to adapt, are there retirement income products that we need to develop to actually help people look out not just 5, 10 years, but 20, 30 years. Because as we all know, demographics is destiny and the demographics says that we have an aging population. People are living longer, which is great news. But when you are retiring at 65, 66, you have probably still got 30 years and that's a big risk for people to how do you actually manage a portfolio for 30 years to make sure you don't run out of money at the end.</p> <p><strong>Freeman</strong>: So, what you are saying basically is, the system has been set up for the accumulation and people have been education about that whole saving for retirement, but that drawdown piece is still in its relative infancy, I guess?</p> <p><strong>Bowerman</strong>: Well, I think, it's a work in progress. I think the David Murray Financial System Inquiry recommended, CIPRs, Comprehensive Income Products for Retirement. The industry is grappling with that. The policymakers are grappling with what's the construct of that. Is it simply the allocated pension with some other stuff in it? So, I think, there's a fair bit of policy and regulatory settings, which from a retiree point of view, brings with a level of risk. Because as regulatory settings change, retirees, they don't have the ability to adapt or save more or to defer retirement if they are already in that retirement phase. So, I think, we need to be cognizant of the fact that changing rules when people have actually been saving for retirement through their working life and then changing rules when they are in retirement can have pretty significant effects.</p> <p><strong>Freeman</strong>: And just following on from that, so in the presentation today you had some quite interesting groupings that you've put together of the specific investment goals for people that are in retirement and also, some of the risks. You had, I think, four or five risks there, and you speak here about the policy and taxation risk. Is that what you see as one of the primary risks over the shorter term?</p> <p><strong>Bowerman</strong>: Over the short-term, I think, absolutely. Obviously, there's proposals in the market around, for example, abolishing franking credits. For self-managed superannuation funds, that would have a significant effect. And these are people, remember, who have been structuring their affairs, running the self-managed super fund based on the current rules. So, changing those rules, we think, would have pretty significant impact on portfolios because they are relying on those franking credits to give them ascertainable income.</p> <p>In terms of other risks, obviously, there's always market risk for defined contribution, for market-linked investments. The market risks are not going to go away. From a Vanguard perspective, we think, returns expectations should be lower than what they have been historically, so more in the, sort of, 6% to 8% range rather than 10s and double figures, et cetera. And then you have the other risks in retirement of a health event, something significant happens on that level. These are things that come along which are unexpected and can come with expensive health bills et cetera. So, people need to have enameling up holistic, sort of, roadmap around it, so that they can actually have some level of financial security and comfort about their retirement plan.</p> <p><strong>Freeman</strong>: You're talking about &ndash; it's an objectives-based process towards planning for the retirement. What are some of the ways that people can match their withdrawal strategy with their objectives in retirement?</p> <p><strong>Bowerman</strong>: Glenn, I think, one of the interesting points around this is, people sort of anchor around, well, how much do I need to retire. So, it tends to be a goal of what's the magic number. Is it $0.5 million, is it $2 million, or whatever that number might be. For us, it's more about is it multiple goals, it's actually about, yes, saving a certain amount of money, but it's actually about understanding your risks and balancing that. So, having that sort of strategy around it. And to your point, the key &ndash; we often have a good savings strategy. People are saving 9.5 per cent or perhaps into super, plus outside super investments. So, I've got a portfolio view. What's their spending strategy? When they are actually getting to retirement? What's the drawdown rate? Are they going to draw down at 5 per cent a year plus inflation? Are they going to draw 5 per cent of whatever the portfolio is that year? I mean, these are some of the, sort of, norms around the marketplace. We are advocating more of a dynamic spending rule; what people consider ceiling and a minimum. There's some volatility in the spending level, but at least it gives you a good probability that over 30 years, say, you're still going to have money in the bank.</p> <p><strong>Freeman</strong>: Sure. Great. Thank you very much for your time today, Robin.</p> <p><strong>Bowerman</strong>: My pleasure, Glenn.</p>

Video Archive...

Super policy shifts and the retirement roadmap
15/11/2018  Saving for retirement is well catered-for within existing superannuation provisions, but the transition to pension mode isn’t as developed, says Vanguard’s Robin Bowerman.
Consumption drives investment not the other way around
09/11/2018  As Australia’s equity market nears its peak and share buy-backs hit unsustainable levels, investors need to also be mindful of rising interest rates and government policy, says Morningstar's Peter Warnes.
Switching up your SMSF for income
08/11/2018  There are still considerable benefits when switching your SMSF to drawdown phase, despite the complexities and potential political changes ahead, says SMSF Association’s Peter Hogan. 
SMSF paperwork crucial to avoid legal problems
02/11/2018  Recent SMSF court cases in Queensland highlight the importance of keeping your documentation in line, says lawyer Shane Ellis.
Will You Hit Your Projected Retirement Date?
03/10/2018  Many factors can impact when you can retire, so targeting a specific date to stop working may not be an ideal strategy. 
Retirement income: expectations versus reality
24/09/2018  Schroders' global head of retirement discusses how investors approaching retirement can fill the retirement income gap, and why professional advice is so important.
The importance of flexible retirement planning
14/08/2018  Building a contingency plan around when you intend to retire is better than setting a firm date ahead of time, according to a recent study from Morningstar's head of retirement research.
Why you need a retirement policy statement
25/07/2018  A document detailing your retirement plans – both in the lead-up and once you begin drawing on your savings – is a great idea, according to Morningstar's US-based director of personal finance.
VIDEO | Investors hoard cash at their peril, says JP Morgan
07/06/2018  When it comes to thinking about retirement, a survey of Hong Kong investors mirrors errors made by investors in the developed world at large: they are saving too little and relying too much on cash, says JP Morgan's Wina Appleton
Shifting laws not denting SMSF demand
01/11/2017  The advantages of a self-managed super funds continue to outweigh the negatives, even though frequent legislative changes add complexity, according to Natasha Fenech, CEO, SuperConcepts.
Superannuation not political football
19/10/2017  The politicisation of Australia's super system; greater uptake of income streams in retirement; and the policy alignment of aged care and retirement planning.
Earnings season FY17 mixed bag so far
18/08/2017  Aside from a few high-profile earnings guidance misses, large-cap stocks are doing okay as FY17 reporting season passes halfway, says AMP chief economist Shane Oliver.
Self-managed super is not Do-it-yourself
03/07/2017  There are a few common pitfalls in running a self-managed super fund that mean trustees shouldn't go it alone entirely, says BT Financial Group's head of financial literacy, Bryan Ashenden.
3 pockets of opportunity in fixed income
07/06/2017  The head of PIMCO Australia gives his views on active management in fixed income and tells us where he sees most value in this space.
No free lunch as fixed-income market shifts
07/04/2017  More difficult market conditions in a rising interest rate environment highlight the value of active management across your portfolio, says Simon Doyle, Schroders' head of fixed income and multi-asset.