To keep your head above water in retirement, focus on the long term

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By Wade Matterson | 30 May 2017

This year, Maritime Super celebrates its 50th anniversary, making it one of the first funds in Australia. It has since grown to $5 billion in assets. Chief executive Peter Robertson talks about the industry’s challenges and why Maritime applies Milliman’s managed risk overlay to its portfolios.

Q: What did workers do before Maritime Super was started? How did the fund begin?

Maritime Super was established in 1967 and the reality was there was nothing prior to that: you walked off the wharf or off the ship and that's all you had. In those days, it was pre-containerisation. These guys were down in the hull of a ship. They were hauling stuff on their backs. It was back-breaking work, and when you got to retirement, there was nothing but the last paycheck. Some of these guys kept working well into their seventies because they had no other way to survive.

If we look at where we began and where we are today–the union’s foresight in getting superannuation set up and employers’ agreement to contribute at higher than mandated rates –it is very rewarding to be involved in this remarkable journey. Of course, I haven’t been around for the whole 50 years, but I’m proud to be a part of such a pioneering fund establishing a retirement savings system for maritime workers.

Q: What do your members want to know about? Is there a common question that comes up?

I like to visit members, whether it's at work sites or on the docks, to know first-hand what their concerns are and how they feel about the fund. We get a diverse range of questions on super, insurance and investments unique to each member. However, during the GFC in 2008 and early 2009, the most common question was "When will this end?"

We're lucky in our fund in that we have a small geographic distribution. Most of our members are based around the ports so we've got a good opportunity to speak to them either as groups or as individuals.

We also have a network of financial planners across Australia who dedicate time to get out and talk to our members one on one to address any questions and help them make the right decisions at critical junctures. We often find members become concerned about market movements, particularly any downward shifts, be it significant or not, mostly due to media dramatisation of market events.

Having been around for a very long time, our account balances are circa $170,000 per member, so that means that our members are more engaged with their super. Upwards of 10% of our membership is now in the retirement phase, so about 24% of our assets are invested in pension assets rather than accumulation assets. Those members have very different questions than members who are still accumulating their super.

One of the key questions is what is the fund doing to help members get to and get through retirement without so many bumps? It’s one of the reasons we've got the Milliman overlay in place to try and manage extreme bouts of market volatility for a more consistent experience over time, particularly for members who need to remain in growth assets to address longevity risk.

Q: Are there other common risks? Do investors chase returns?

There are people who chase returns, but the reality is that the quickest way to the bottom is to follow the top. Other common risks that come into play, particularly as you approach retirement, include sequencing, adequacy, longevity, liquidity risk.

The reason we partnered with Milliman was because one of the ways to deal with longevity risk–other than to have a very large amount of money, which most people won't have–is to invest appropriately with considerable exposure to growth assets and some ability to manage or minimise the volatility associated with growth assets.

If you have a large drop in your super balance as you approach retirement, it can have a massive impact on your future retirement income. The Milliman overlay helps us to minimise the impact of extreme volatility. It doesn't mean we can't have a negative return, but we're looking to mitigate significant downturns that are difficult to recover from with a shorter investment timeframe.

In terms of liquidity risk, there's no single solution. You've got to be invested in growth assets, but you potentially also need ready access to funds for medical treatment, aged care, going on holidays, buying a new car, so you can't afford to have all your eggs in one basket.

Liquidity is achieved through holding additional cash or liquid assets somewhere else within the portfolio and potentially having a guaranteed income stream as well. So if you consider all things together, you can come up with a solution which will suit most people, but again, you’ve got to look at their investment risk profile. Are they prepared to take a downturn? You've got to look at how old they are, what their account balance is.

There's a big difference between the mentality of an investment banker and the mentality of a conservative “everyday” investor who is more risk averse and has a personal connection with the funds invested. If you haven't got enough money in your account, the investment banker would say, "Keep going. Go for as high risk as you can." The conservative investor would say, "Well, there's not much I can do about it, so I won't invest in more growth assets."

What we've done by having Milliman provide its managed risk overlay is hopefully get to a position where you can say, "Well, it doesn't matter whether you're the high-risk or the risk-averse person. You can still have some exposure to growth assets to grow your portfolio and provide some longevity protection, without experiencing the extreme market movements."

Q: Do people focus too much on the short term?

The shift in super arrangements from defined benefit to defined contribution has in some way contributed to the focus on super balances and short-term fluctuations. I've been in this industry for 26 years and when I started, defined benefits were commonplace and just by their very nature–super was based on a formula and that was that.

With the onset of defined contribution funds, as well as member investment choice and portability, there’s been more transparency and focus on account balances and their fluctuations due to market movements at any point in time.

Technology and media play a big part in the immediate, and sometimes alarming, distribution of information. On the one hand, it’s great as it helps people stay connected daily, hourly, even minute by minute. The difficulty, though, is that generally the news reports tend to sensationalise information. So $50 billion is wiped off super accounts today, but the market goes up tomorrow by the same amount. They don't mention the upturn. It's only ever about the downturn. As they say, bad news sells.

We’ve been doing a lot to educate members and field calls around market movements and the need to remain calm and stay on course with their investment strategy. Our focus is to help members through the development of tools and calculators to help them explore their super and see the impact of small changes to contributions, investments, retirement date and so on, to help them better understand and manage their super over the long term.

Not everyone will see a planner, so we try to cover our bases to help members make informed decisions about their financial future. To help imagine their future, we recently provided members with retirement income estimates to help them visualise their income in retirement, and we plan to continue doing so along with retirement adequacy campaigns to shift the focus from short term to long term and provide transparency over future income.