Wave of Retiring Baby Boomers to Test Australian Pension Funds

(Bloomberg) -- Australia’s third-largest pension fund is boosting its financial services division as a wave of baby boomers look to exit full-time work over the coming decades.

First State Super is increasingly focusing on giving advice to stretch the savings of its 800,000 members as they shift into the draw-down phase of their pension plans, Chief Executive Officer Deanne Stewart said in an interview in Sydney. It’s one way the A$94 billion fund ($64 billion) plans to enhance its value proposition at a time of intense competition in the nation’s almost A$3 trillion superannuation industry.

“You’ll see that point of difference become much clearer over the next few years,” Stewart said. First State aims to help “our members make the most out of retirement, both by the way we create the portfolio and the way we provide services like aged-care support, estate planning and advice,” she said.

The world’s fourth-largest pension pool is facing a litmus test as more people enter retirement, live longer and need a steady flow of income on which to survive. One-quarter of Australia’s workforce is forecast to be of retirement age by 2060, up from 16% this year, United Nations data published Monday show.

Stewart said First State was careful not to be seen as using its financial planning arm as a sales force, something that has landed firms including AMP Ltd. and IOOF Holdings Ltd. in hot water previously.

“We’re not using our financial planning arm to be a sales force. We’re using our financial planning arm to really serve our members and help them work out how they manage their expenses as they move into retirement,” she said.

China, Private Equity

Australia’s government has proposed laws forcing pension funds to come up with low-cost products that ensure retirees don’t take up a social security payment in a bid to address the problem. Melbourne-based UniSuper investigated an option that merges a defined benefit and traditional accumulation plan.

“Too much of the debate in our industry at the moment is product oriented and reliant on comprehensive income products for retirement being the answer to help Australians have the best retirement,” Stewart said. “That’s part of creating better retirement outcomes, but it is by no means all.”

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First State is also joining Australia’s largest pension funds in investing more in public and private markets overseas. With the mandatory retirement savings pool expected to swell from A$2.8 trillion to A$5.4 trillion within a decade -- and the market cap of the S&P/ASX 200 at A$1.95 trillion -- there’s an imperative to look offshore for returns.

First State wants to partner with private equity firms and is considering “possibly dipping our toe” in direct Chinese investments to benefit from that country’s rising middle class, Stewart said. The firm received a license to trade and invest directly in mainland China stocks in early 2017.

However, partnering with local experience is crucial, she said, declining to give the names of any individual companies. “A number of those players have the expertise and skills and are doing very well and are getting very good returns,” Stewart said. “That’s actually a really good opportunity for our members.”

With regard to the proposed merger between First State and VicSuper Pty, Stewart said both boards were still at the consideration stage and after that would move to due diligence with a final decision expected by year-end.

To contact the reporter on this story: Matthew Burgess in Melbourne at mburgess46@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Peter Vercoe

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