Its always a bit hard to know whether someone has been reported correctly, but Jeremy Cooper was reported as saying that Australian retirees should reduce their exposure to growth assets like shares as they approach retirement. He also apparently commented on the way the tax system skews people's investment decisions to shares, when these are inappropriate for their stage of life. Rather they should be encouraged to invest more in bonds and cash.
In an ideal world, we would all have sufficient assets by the time we retire, so that exposure to growth assets was not necessary for long term adequacy of retirement income. Most people do not put their assets at risk for the fun of it, and if a safer option is available they would choose to take less risk. Unfortunately, this is rarely the case. Growth assets such as shares and property are a way to, hopefully, provide some long term growth in the portfolio and add to the longevity of the fund's capital, allowing for income to keep up with inflation etc. Its not all about tax.
Adequacy and longevity risk are a function of two primary inputs. The first is savings - the more you save while working the more capital you will have to back your retirement and the less risk you will need to take. Unfortunately the government has in recent years launched a concerted attack on a person's ability to save into Superannuation. So while savings can be a guaranteed return within super, this avenue has shrunk considerably. The second input is returns - the better the returns you achieve the more capital you will have for any given level of savings. It is here that the greatest uncertainty lies, as we have all been reminded over the last few years. Tim Costello recently commented that Super had failed to provide the level of return that people were entitled to expect. This is nonsense. No-one is entitled to expect a certain level of return unless you have chosen cash and term deposits as your sole investments. Everything else involves making a measured decision to risk your assets for an uncertain return. Sometimes these decisions surprise you on the upside and sometimes on the downside (just ask those who invested in Greek government bonds). But the return is not certain over any given timeframe. The trick is not to say that people of a certain age or situation should not be in a certain type of investment. Rather they need to know that the risk they are taking is something they are willing to live with.
Arguably, if you want to give people more certainty, give them more capacity to save. Restricting investment choice in many cases simply guarantees failure.
