Pension products are changing, along with clients' needs.
Superannuation-fund trustees are starting to respond to the fact that members entering retirement want different things from a super fund. The result is that new styles of super pension products are emerging that are more tailored to the requirements of people drawing money out, rather than putting it in. Innovative super funds are offering transaction banking facilities in their pension accounts to make it easier to manage cash flows. They are incorporating lifecycle investing features to reduce members' exposure to risk as they get older.
And they are adjusting their investment strategies to take advantage of the different tax treatment of account-based pensions and of retirees over 60.
Super-fund members who are about to retire should be asking whether their current fund includes these features. If not, they may want to shop around and work out whether any of those features suit their needs before they settle on a pension account.
A research manager with SuperRatings, Kirby Rappell, says most super funds offering account-based pensions are a mirror image of their accumulation accounts, with the same investment portfolios and similar member services. That is changing as the number of retiree members grows.
Russell Investments' pension product, Russell Private Active Pension, includes an ANZ cash-management account that's designed to let members simplify their banking activities. The director of business strategy and operations at Russell, Jason Marler, says it had feedback from members who said transferring money from their pension account to a bank account could sometimes be difficult.
"When members move from accumulation into a pension, they establish an income stream," he says. "But they also have unforeseen needs and often want to set cash aside for that.
"In a regular pension product, they would have to hold that cash outside their fund but by giving them access to a cash account in the fund, they can keep their at-call money in the low-tax pension environment."
The industry super fund Vision Super offers its members a transaction account (which is provided by the credit union service company Cuscal) that operates online and through a Visa debit card.
Sunsuper has incorporated a cash buffer into its pension fund without offering a transaction account. Its "today and tomorrow" strategy has a cash component equal to twice the annual pension payment the member has nominated.
The idea is that any one-off withdrawals will come from the cash balance.
Another innovation is a greater focus on the tax implications of investing in a pension fund. Last year, Russell started differentiating its investment strategies based on the way different funds are taxed.
Marler says that by taking a lot of little steps, funds can add 40 basis points to 100 basis points to after-tax returns.
Meanwhile, last November, Catholic Super appointed asset consultant Parametric Portfolio Associates to provide after-tax performance measurement services.
The third pension-fund innovation is the introduction of lifecycle investment products that automatically adjust the risk exposure of members' portfolios over time.
For example, members in First State Super's default option have a 70 per cent growth and 30 per cent defensive asset mix up to the age of 56, when the mix changes to 50 per cent growth and 50 per cent defensive.
In the BT Super for Life Lifestage Fund, members born in the 1990s have their money invested in a pool that has 90 per cent growth and 10 per cent defensive assets. People born in the 1960s have a 75 per cent growth and 25 per cent defensive asset split. People born in the 1940s have a 35 per cent growth and 65 per cent defensive split.