As the dust from implementing the Stronger Super reforms, including the introduction of MySuper, settles within the superannuation industry, a dichotomy in the way the industry approached the reforms has emerged. According to Mercer, super funds either implemented the reforms as an act of compliance or they also viewed it as an opportunity to innovate.
The introduction of lifecycle investing in around 20% of MySuper default products is evidence of those who chose to innovate.
Lifecycle investment products as default options have changed the Australian superannuation landscape and there is a clear increase in the prevalence of lifecycle funds in Australia according to Mercer’s analysis.
David Anderson, Mercer’s Managing Director & Market Leader for the Pacific, said, “Our industry was recently faced with major regulatory change to default superannuation and we saw it as a generational inflection point and an opportunity to innovate.”
“The massive change requirements of Stronger Super could’ve been seen as a ‘repackage’ exercise or as a catalyst to bring our very best thinking to market.
“Instead of re-packaging our default investment option we created Mercer SmartPath™, the most innovative lifecycle investment fund on the market.
“We’ve believed, for a long time, that investment strategies for individuals require a whole-of-life perspective. Superannuation is not only about the accumulation phase or working years, or just about lump sums - the primary goal should be to deliver a sustainable income throughout retirement,” Mr Anderson said.
Mr Anderson said he felt confident discussing innovation in superannuation after the Mercer Super Trust was awarded ‘Best Fund: Innovation’ at the recent Chant West/Conexus 2014 Super Fund Awards.
More than 125,000 members have switched to Mercer SmartPath™ since it was introduced in December 2013, and membership continues to grow. It has contributed to the growth of the Mercer Super Trust to more than $20 billion.
“We’ve experienced overwhelming support for Mercer SmartPath™ from our clients including some of Australia’s largest employers that have chosen the Mercer Super Trust.” said Mr Anderson.
“Both the strategic asset allocation and underlying security selection that drives Mercer SmartPath™ are the ultimate ‘smarts’ behind our lifecycle product and are critical to delivering an adequate and sustainable income for people throughout their retirement.
“The MySuper reforms are some of the biggest changes to impact Australians’ retirement savings in 20 years and we are very proud to say we took the opportunity to innovate and change the retirement outcomes of millions of Australians for the better.
“We believe there has been a shift in Australians’ awareness and acceptance of lifecycle investing and we expect the trend of increasing lifecycle investment options will continue. There are perceived challenges we believe can be overcome and we expect the number and nature of the solutions will evolve over time.
“More innovation in superannuation must be encouraged, promoted and celebrated,” he said.
Mercer SmartPath™ is different from many other lifecycle products on the market because it is designed to go throughout retirement, not simply up to retirement as required by MySuper legislation. It has a higher allocation to growth assets after retirement compared with other lifecycle options because it factors in the age pension.
Mercer SmartPath™ groups members in five year age cohorts to better adapt to members’ circumstances. Most other funds use blunter 10 year age bands. It has multiple price points which means lower fees for older members to ensure they do not subsidise younger members given riskier assets attract higher investment costs. It also means members pay lower fees when their asset balances are highest.
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @MercerAU @MercerInsights