Australians saving for retirement are taking on significantly more risk in their investment portfolio than their global counterparts through a lack of allocation to fixed income securities, according to Daintree Capital, a boutique investment management firm.
This is particularly concerning given their income level in retirement is not guaranteed, Daintree Capital tells Super Review, a website serving all segments of Australia’s superannuation and institutional investment industry.
Despite the nation having one of the highest savings rates in the world thanks to its compulsory superannuation system, a closer look at Australian retirement funds revealed they contained on average an almost 5% allocation to equities, significantly higher than other developed nations such as the UK and Canada.
Daintree Capital director Justin Tyler said the heavy weighting to growth assets was driven by Australians’ lack of familiarity with the bond market and their eagerness to take advantage of the Australia’s generous franking credit regime.
However, this resulted in additional volatility and sequencing risks for retirees, he said.
“Australian retirement funds on average have just a 14% allocation to bonds,” he said. “So it would seem that those approaching retirement are taking excessive risks with their savings in exposing themselves to the twists and turns of the equity market,” he said.
“This is particularly the case given that Australian retirement savings are made up almost entirely of ‘defined contribution’ style schemes – meaning income in retirement is dependent upon the investment returns generated by the fund, rather than linked to an individual’s working salary as it is in many other markets.”