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Is super post-retirement ready?

Dan Purves




“Americans have a saying: ‘Life comes in three phases: struggle, success, significance,’” Peeyush Gupta, chair of StatePlus (formerly State Super Financial Services) told Investment Magazine. “I’m in the period of my career where I’m in the significance stage; after having achieved a degree of success it really is about helping a younger executive team succeed.”

Gupta is modest to say he has achieved a degree of success. He is an alumnus of Harvard University and the London Business School; was the co-founder and chief executive of wealth management firm IPAC Securities; has sat on the boards of numerous well-known Australian institutions such as NAB, MLC Life, Charter Hall Direct Property, Safety Return to Work and Support, and SBS Special Broadcasting Service; and has helped StatePlus achieve a net promoter score that puts it in the top 1 per cent of financial institutions globally.

However, while modest about his accomplishments, he holds strong views about the superannuation industry and its role in Australia.


Vested interests

In Gupta’s assessment Australia is going through a period of political paralysis, stopping it from tackling important issues for the country’s longevity and betterment.

“And it’s easy to blame only the politicians, but remember, they are only one of the actors on this stage. Equally those of us who represent vested interests of one sort or another – and we all have vested interests, wherever you are in the [superannuation] industry – we need to look in the mirror and ask whether we have also impeded the process that would allow innovation and change.”

Gupta laments that superannuation has morphed from its original objective of providing retirement income streams to a focus on wealth accumulation, but he has been heartened by the Financial Systems Inquiry’s recommendation that comprehensive income products for retirement should be developed.

“The thing that excites me is that it would return the superannuation system back to its original intent, for the reasons it was designed. For the betterment and the protection of members of the system, which is about security of retirement income streams and management of longevity risk.

“The only thing that frustrates me is that a component of super reform is caught up in the whole tax debate. And we do need to see leadership there. One of the advantages that underpins the [superannuation] industry is the very significant tax concessions we enjoy.”

Economists frequently make the point that while tax concessions may alter the pool of savings, there is little data or proof that they necessarily increase the pool. As such, Gupta says, there is no reason the absence of tax concessions would reduce the pool of aggregate savings in the community.

“So, every time someone screams blue murder from the superannuation industry around not touching tax concessions it sounds to me like a partisan call. Really, what we should all be about is improving aggregate income sufficiency in retirement, in which superannuation definitely has a role.”

However, Gupta recognises there are costs to tax concessions and arguably they are not currently well-targeted to those in the community who need them most. For him, this makes a strong case for reviewing the tax concessions provided in superannuation to make sure they go to those who are most in need of them.

“What we don’t need is populism or scare mongering; rather we should engage in the discussion. Vested interests – and all sides have vested interests – prevent the debate from occurring properly. And that is short sighted.

“My view would be to bring it on. Let’s have the debate and forge a way forward.”


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    Because of the industry’s focus on accumulation, Gupta is far from convinced it is well prepared for the many dimensions of the post-retirement phase.

    “There’s quite a big set of investment issues which emerge and, frankly, most funds have not thought out adequately or done enough investment choice innovation in the post-retirement phase.”

    The typical balanced default fund that exists in the accumulation phase, which is tailored for long-term growth, is unlikely to be the most appropriate investment strategy or risk profile for a retiree, where downside risk protection, volatility, returns and sequencing issues are more prominent.

    “In the investment arena it’s quite a different portfolio construction. It’s the choice of your asset allocation, number one; it’s also the choice of the style of managers you use. For example, in equities we tend to use more downside risk-aware approaches. It’s in things like tail risk protection and hedging strategies.”

    Gupta adds a risk-aware fund should consider spending a bit of its fee budget on buying protection for outlier events.

    “There’s quite a degree of investment sophistication that needs to go into that to construct portfolios that are more downside risk aware. Allocating a portion of our portfolio into absolute return strategies would be a fourth component of portfolio construction.”



    There is also the issue of advice. There’s a spectrum where advice can be embedded into a product, for example, with lifecycle funds.

    “It’s solving, partially, the problem, but not wholly because as soon as clients are retired you still have a 30-year-plus horizon. So the real issue is to manage sequencing risk, and at StatePlus we think you can do that better if your business model permits you to give [personalised] advice, because you can then sculpt the solution to the specific needs of the client, including managing sequencing risk.”

    While StatePlus strategic planning considered longevity risk protection and other related investment issues, one of the highest needs for its members it identified was the provision of aged care advice.

    “There’s other advice needs in the later stages of retirement like aged care advice, which is becoming more and more a need for many people. And interestingly enough, if not for the members of super funds themselves who might be 65-year-olds, but for their parents who might be 85 or 95 years old.”

    Estate transmission and planning has not been a strong feature amongst StatePlus’ membership; however, Gupta can “well imagine” there will be unintended consequences around poor estate planning. As such there may be a potential business to be had by formally providing estate-planning advice.

    “Portfolio construction specifically for post-retirement; general, scoped and comprehensive advice; and adjacent services such as aged care – these are all examples of areas most funds haven’t turned fully to yet. I am confident that funds will turn to these issues in coming years, and excited for members for the benefits that will flow.”


    To read the March edition of Investment Magazine click here.