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How to future-proof your super from the next market meltdown

“We take for granted that people insure their largest asset – their home. So, why don’t they insure their next most valuable asset – superannuation?” Mr Rady says.

Allianz Retire’s Future Safe offers retirees a “cap and floor” strategy that works by limiting investment losses while providing exposure to equity returns over a seven-year period.

Retirees can choose their own level of risk. If they want to protect equity portfolios from losses, they can chose a 0 per cent floor, meaning they won’t lose money if the market starts to plummet.

However, opting for 0 per cent limits investment returns to a maximum of 4 per cent a year. If retirees want to take on more risk and accept a 5 per cent sharemarket loss, they can make an annual return of up to 7.5 per cent.

Mr Rady says these types of retirement products are common in the US, where 10 large players compete for market share.

However, equities protection has failed to catch on in Australia as the costs are traditionally seen as too high.

Still, leveraging off the capital base of its US-based $150 billion parent company Allianz Life, Mr Rady says Allianz Retire has been able to keep the costs of Future Safe at a relatively low 0.85 per cent per annum. “That’s about the cost of an actively managed fund, but without the risk,” he says.

Australia’s super system was once dominated by defined-benefit schemes, where employers and funds took on the market risk and members received guaranteed income in retirement.

The size of ongoing payments is determined by a formula based on an employee’s career length and final salary rather than long-term performance of assets in the fund.

However, most defined-benefit schemes are now a distant memory.

UniSuper is the only defined-benefit fund in the country that remains open to new members, although it is fraught with issues as the tertiary education sector faces job losses and salary cuts.

Telstra Super and Qantas Super have defined-benefit funds still running but are closed to new members. QSuper’s defined-benefit fund payments are guaranteed by the Queensland government.

Australians are turning to annuities to de-risk investments as they enter retirement. They require a lump-sum payment that guarantees income for a certain number of years, or for life.

However, annuities are often linked to low-risk assets, such as bonds, providing returns as low as 1.5 per cent a year – and they can also lock out investors from any potential sharemarket growth.

A consumer survey by accounting firm KPMG released this month found that since the COVID-19 pandemic began Australians are more engaged with their super than ever before.

Half of those surveyed said they are more aware of their retirement savings balance now than before the crisis, with 57 per cent saying they needed to review their investments. Almost half claim their retirement plans had been interrupted by the pandemic.


Market losses through March resulted in a surge in the number of super fund members switching their investment option to cash, to stem plummeting balances.

However, the move only served to lock-in sharemarket losses and funds warned members they would be worse off for it. That advice has proven prophetic, with the benchmark S&P/ASX 200 Index rebounding more than 30 per cent from its March lows.

As super fund members are forced to take on more market risk, the March rout is a reminder to check your fund’s risk profile. If you would be devastated by another big sharemarket fall, it may be time to do some future-proofing of your retirement savings.

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