Milliman's Wade Matterson

Being called a one-trick pony is not a compliment and yet many Australian super funds have been satisfied possessing only one core skill for almost 30 years.

Their main area of expertise is allocating long-term capital when their mandate to secure a dignified retirement for all members and minimise dependence on the Aged Pension demands so much more than that.

But Covid-19 presents a unique opportunity for the industry to pursue a different approach to managing members’ retirement savings.

In the same way that many Australians are using their time in quarantine to learn a new language, play an instrument and master the art of baking bread; funds must also use this crisis for self-improvement.

They should emerge with a resolve to become experts at risk management too. That requires a sharper focus on members’ liabilities.

The task of liability matching is fundamental to the role of trustees, but prudent risk management is not only about matching a fund’s long-term pension liabilities with appropriate long-term investments. It is also about understanding the liability profile of individual members.

As fiduciaries (and not mere asset owners), super fund trustees have a responsibility to give equal attention to members’ liabilities, and not just their financial goals and aspirations.

But this is not a pitch to return to the principles that underpin defined benefit schemes. Members’ liabilities are not as simple as 60 per cent of final salary. They are certainly not as straightforward as the defined contribution yardstick of CPI+.

In fact, the language of risk and liability management is problematic in its own right and reflects the technical focus and background of much of the industry (and particularly actuaries and investment professionals). It neglects the fact that the ultimate output of a superannuation fund, is an innately personal and emotional one.

Member diversity

Super fund members represent a complex web of disparate lifestyles, occupations and degrees of health and affluence, all of which are subject to continuous change.

One person’s idea of a comfortable retirement will differ from another’s. Each individual member has deeply personal hopes and dreams.

Any number of uncontrollable events can see these dreams shattered, including long-term unemployment, a sudden health crisis, a major market correction and a good old-fashioned pandemic.

These are the risks that matter for the members that have placed their retirement aspirations in our care and must be appropriately managed.