When it comes to retirement, super funds worldwide face a crucial challenge: efficiently converting retirement savings into income streams that benefit members. This challenge is particularly significant for Aware Super, managing $190 billion in assets, with a substantial portion in retirement phase, paying out billions annually in benefits. Shang Wu, the portfolio manager for retirement strategy at Aware Super, emphasizes the importance of achieving success in retirement outcomes.
Wu believes that the Australian superannuation system holds a unique position to address the retirement income dilemma effectively. Being an early adopter of superannuation, Australia has the potential to set a global standard for converting retirement savings into sustainable income streams, benefiting both the system and the community at large.
While investments play a pivotal role in the retirement income equation, Wu stresses that the solution goes beyond investment strategies. Aware Super has implemented a lifecycle default strategy, gradually reducing risk exposure as members age. However, Wu acknowledges that retirement product design is equally crucial. While some funds collaborate with third parties for retirement income solutions, Aware Super is developing an in-house longevity product design.
Addressing retirement challenges requires a collective effort across various divisions within super funds. Wu emphasizes the need for collaboration among divisions such as advice, member services, and product design to provide comprehensive solutions that mitigate risks like market volatility, sequencing risk, and behavior risk.
Behavior risk, particularly evident during market fluctuations, poses a significant threat to retirement outcomes. Wu emphasizes the importance of guiding members to make informed decisions, especially during turbulent market conditions. Aware Super’s proactive approach includes educational initiatives, webinars, and personalized advice to help members navigate uncertainties and avoid detrimental decisions.
Managing behavior risk involves a multifaceted approach that combines investment strategies, product design, and member education. Aware Super’s tail-risk program, aimed at addressing sequencing risk, incorporates behavioral elements to reassure members during market downturns, safeguarding their retirement savings.
Wu acknowledges the complexity of managing tail risk effectively, highlighting the need for expertise, scale, and a member-centric approach to deliver positive outcomes. By prioritizing member interests and focusing on long-term financial security, Aware Super aims to provide sustainable retirement solutions that align with members’ needs and objectives.
As the retirement landscape evolves, there is a growing emphasis on decumulation strategies, shifting the industry’s focus from accumulation to retirement income solutions. Wu anticipates that funds globally will increasingly invest in retirement-focused initiatives, ushering in a new era of retirement planning that caters to the diverse needs of retirees.
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