CSIRO, unis look to create a golden age
The CSIRO, an organisation well known for scientific research, has partnered with four universities to begin a $9 million research program into the nation's retirement savings system. Researchers from the CSIRO, Monash and Griffith universities, the University of Western Australia and the University of Warwick in Britain will investigate two broad themes: superannuation and the economy, and Australians over 60.
The Superannuation Research Cluster, as it is known, has already begun work, with the first outcomes expected by the end of this year. It is the first time the CSIRO has been involved in research in superannuation, which, at $1.6 trillion, is worth more than Australia's annual gross domestic product. The giant pool of super savings is having an impact on the economy.
The Cluster brings together researchers with expertise in disciplines including financial mathematics, social science, risk analysis, accounting, economic modelling, finance, health economics and behavioural economics. The research program was drawn together by Monash University's Professor Deborah Ralston, who is also executive director of the Australian Centre for Financial Studies. She says not much research has been done on the retirement phase, with most work concentrated on the accumulation phase.
"We are particularly interested in what I call that transition period from about age 55 to 65 and how you allocate assets over that time," Ralston says. "I think as people go into retirement, they have different needs."
First, they need an ongoing income to meet the costs of living. Then, they need to take care of longevity risk; that is, the risk of outliving their retirement savings, Ralston says. And they need to be able to access capital from time to time; for example, to buy a new car.
The research will look at ways these objectives can be met, including what sort of gfinancial products and services could be made available to retirees. Among the many research projects is a study into optimal asset allocation that super funds should have. There is a debate going on in superannuation circles as to what that may be.
The high exposure to shares of the typical "balanced" option exposes those nearing retirement to a lot of investment risk. During the global financial crisis, older fund members near retirement were left with less super than they were expecting after share prices collapsed. Some had to stay in the workforce for longer than they had planned, to rebuild their retirement savings.
Another team will look at fund members' behaviours in switching between superannuation investment options. During the worst of the GFC, some people switched from their fund's balanced investment option to their fund's cash option. They ended up locking in the losses and have missed out on the subsequent recovery on sharemarkets. Another team will study the financial aspects of later-life medical and aged-care expenses.
Frequently Asked Questions about this Article…
The CSIRO Superannuation Research Cluster is a $9 million research program led by the CSIRO in partnership with Monash, Griffith, the University of Western Australia and the University of Warwick. It studies Australia’s retirement savings system and people over 60. For everyday investors, the research matters because it aims to produce evidence on retirement-phase issues—like income, longevity risk and product design—that could influence how super funds invest and the retirement products available.
Researchers will investigate two broad themes: how superannuation interacts with the wider economy and the financial needs of Australians over 60. Projects draw on disciplines such as financial mathematics, economic modelling, health economics and behavioural economics, and include studies on optimal asset allocation, member behaviour in switching investment options, and later-life medical and aged-care expenses.
The research highlights the transition from about age 55 to 65 as a key time to think about asset allocation. During this period people’s needs change: they need ongoing income to cover living costs, protection against longevity risk (the risk of outliving savings), and access to capital for one-off needs. How assets are allocated across this transition can strongly affect retirement outcomes.
One project is explicitly looking at optimal asset allocation for super funds. The research may challenge the assumption that a high share exposure in a typical 'balanced' option is appropriate for those near retirement—especially after the global financial crisis showed how share market falls can hit near-retirees. Findings could inform better default allocations or retirement-phase strategies.
The article notes that the high share exposure in many balanced options exposed people nearing retirement to significant investment risk during the global financial crisis. Some older members saw their superannuation drop and had to stay in the workforce longer to rebuild savings. The crisis highlighted the downside of heavy share exposure close to retirement.
A team will study how members switch between investment options—for example, moving from a balanced option to a cash option during market falls. The article points out that some members who switched to cash during the worst of the GFC locked in losses and missed the recovery. Everyday investors can take from this that timing reactions in volatile markets can have long-term consequences.
Yes. One of the Cluster’s projects will study the financial aspects of later-life medical and aged-care expenses. This work aims to clarify how health and aged-care costs interact with retirement savings and what products or planning approaches might help manage those risks.
The Cluster has already begun work and the first outcomes were expected by the end of the year (as reported). Investors can use the research findings to inform decisions about asset allocation as they approach retirement, understand longevity and health-cost risks, and evaluate retirement-focused products—while remembering to combine new insights with personal financial advice.
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