Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Australian super asset allocations leaving investors at risk

Australian superannuation asset allocations leaving investors at risk – CIFR

12 August 2014 (Sydney): The Centre for International Finance and Regulation (CIFR) today released results of a study into the ‘retirement risk zone’, concluding that the current investment choices made within many super plans were not ideal for those immediately pre- and post-retirement.

The CIFR-funded study, by Professor Geoffrey Kingston and Professor Lance Fisher, both of Macquarie University, identified the most common mix of investment classes in Australian super portfolios as an ‘aggressive constant mix’, in which 70-90% of assets are allocated to growth assets. This asset allocation has remained surprisingly dominant even in the past five years, when many retirees were hurt in the downturn after the 2008 Global Financial Crisis.

The authors suggest that the issue with the dominant aggressive constant-mix is that retirees’ assets are not set up correctly as they approach retirement.

“Current strategies leave retirees particularly exposed due to high allocations to growth assets,” said lead author Professor Geoffrey Kingston. “If the share of growth assets is progressively scaled back to about half, the risk experienced around retirement can be managed.”

United States trends suggest that Australia is falling behind best practice and the study asserts it is time that Australian practice shifted away from constant-mix asset allocations, laying responsibility for making this happen with the industry, ASIC, APRA and individual households.

“Professor Kingston quotes Ken Henry, who noted that Australian super funds allocate only slightly more than a tenth of assets to fixed income while the OECD average allocation is approximately half.”

In Australia, seven out of 10 households rely primarily on their pension for an income in retirement and nine out of 10 households draw some pension during retirement. This issue has been top of mind for policymakers, said Professor Kingston. “By ensuring superannuation assets are less risky aound the point of retirement, we can positively impact Australia’s pension liabilities.”

Professor Kingston concludes by suggesting the introduction of a different asset allocation strategy for retirement funds, whereby exposure to risky assets drops on approach to retirement age and rises again following retirement (see figure 1 following).


About the authors:
Professor Geoffrey Kingston
Professor Kingston obtained his Bachelor and PhD degrees from the Australian National University. Before moving to Macquarie University in 2009, he lectured at the University of Western Ontario, the University of Queensland, The University of Sydney and UNSW Australia. He has published in the Quarterly Journal of Economics, Economic Journal, Journal of International Economics, International Economic Review, Journal of Money, Credit and Banking, Journal of Monetary Economics, Journal of Public Economics and Journal of Economic Dynamics and Control. His co-authored book on superannuation was published in 2001 by Cambridge University Press.

Professor Lance Fisher
Professor Fisher was appointed Professor of Economics at Macquarie University in February, 2008. Previously he was with the Department of Economics at UNSW Australia for twenty years. He has held visiting appointments at several universities, including Virginia Tech, Yonsei, The Australian National University and The University of Melbourne. He has also been a visiting fellow at the Reserve Bank of Australia. His principal area of research interest is macroeconomics and macroeconomic modelling.

Professor Fisher has investigated identification methods in structural macroeconomic models. He has applied these methods to the study of consumption and wealth in Australia and the United States and to the study of business cycles more generally. He has estimated predictive models for government expenditure and asset returns. His work on asset return predictability forms the basis for his current research with Professor Geoffrey Kingston on managing superannuation in later life

© Scoop Media

Business Headlines | Sci-Tech Headlines


Hourly Wage Gap Grows: Gender Pay Gap Still Fixed At Fourteen Percent

“The totally unchanged pay gap is a slap in the face for women, families and the economy,” says Coalition spokesperson, Angela McLeod. Even worse, Māori and Pacific women face an outrageous pay gap of 28% and 33% when compared with the pay packets of Pākehā men. More>>


Housing: English On Housing Affordability And The Economy

"Long lead times in the planning process tend to drive prices higher in the upswing of the housing cycle. And those lead times increase the risk that eight years later, when additional supply arrives, the demand shock that spurred the additional supply has reversed. The resulting excess supply could produce a price crash..." More>>


Sweet Health: Sugary Drinks Banned From Hospitals And Health Boards

All hospitals and DHBs are expected to kick sugary drinks out of their premises. University of Auckland researcher, Dr Gerhard Sundborn who also heads public health advocacy group “FIZZ”, says he welcomes the initiative. More>>


NASA: Evidence Of Liquid Water On Today's Mars

Using an imaging spectrometer on MRO, researchers detected signatures of hydrated minerals on slopes where mysterious streaks are seen on the Red Planet. These darkish streaks appear to ebb and flow over time. More>>


Bird Brains: Robins Can Just Be Generally Clever

Research from Victoria University of Wellington has revealed that birds may possess a ‘general intelligence’ similar to humans, with some individuals able to excel in multiple cognitive tests. More>>


Psa-V: Positive Result On Whangarei Kiwifruit Orchard

Kiwifruit Vine Health (KVH) has received a Psa-V positive test result on Hort16A and male vines on a kiwifruit orchard in Whangarei. This is the first confirmed case of Psa-V on an orchard in the Whangarei region. More>>

Regional Accents: Are Microbes The Key To Geographical Differences In Wine?

A new study of six of New Zealand’s major wine-growing regions has found that differences in flavour and aroma of wine from different areas may depend more on microbes than was previously thought. More>>


Science: AgResearch To Cut Science Staff In Areas Of 'Reduced Demand'

“We are therefore consulting with our staff from today on a proposal to reduce science staff in areas of shrinking demand. Combined with recruitment planned in areas of growing demand, this would mean a net reduction of 15 scientists and 41 technicians at AgResearch in the 2015/16 year." More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news