The focus on providing sustainable retirement incomes for fund members continues to intensify. A key challenge for superannuation funds is developing a coherent retirement strategy which meets the needs of their members.
In our latest research paper, Navigating the maze: Developing your fund’s retirement strategy, Towers Watson Head of Retirement Income Strategy Nick Callil says that while it’s tempting to rely on existing solutions, product innovation means funds must consider whether any of the new breed of products can better meet retirees’ needs. However, navigating the options for the retirement phase is not straightforward. Given the range of retirement products and strategies available, the multitude of different risks and preferences that matter to retirees, and complex implementation issues, it is little surprise that no universal solution for retirement strategy presents itself.
To help funds cut through this complexity, a robust, member-centric assessment process is essential. Towers Watson has developed a structured process - known as the Retirement Strategy Appraisal (RSA) framework - that can be used to assess and compare different retirement strategies on an equal footing. Working through this process also provides deeper insights on the product landscape to key fund stakeholders.
Ultimately, developing a fund’s retirement strategy requires not just familiarity with the design features of the various products, but a rigorous assessment of the outcomes generated by each, and a quantitative comparison of these outcomes across different product types. A key obstacle to undertaking this assessment has been the complexity of comparing retirees’ outcomes from products with diverse features, return drivers and payoff profiles, under differing prospective market return scenarios.
Moving towards this type of thinking is critical for the industry. As the product marketplace becomes richer and more diverse, a robust means of comparing products against members' objectives is essential. Funds need to be able to demonstrate why they have selected a given product suite, and how these products will deliver outcomes that meet members’ income, stability and liquidity needs.