Global asset manager seeks to address perceived shortcomings with strategy exclusive to country
The need for people to double retirement assets between 55-65 years old is being overlooked, according to a global asset manager.
Schroders, which has $780.5 billion in AUM, conducted a survey that found only 22% of plan sponsors at the Association of Canadian Pension Management National Conference in Quebec City were satisfied with Canadian retirement products. More than half (53%) thought the products would not provide enough income to last them through retirement.
Schroders believe these statistics confirm the thinking behind its new MyRetirement Funds, a retirement strategy designed exclusively for Canadians.
Speaking in Toronto, Ross Servick, head of Canada, said it was clear that the target-date solutions being offered in Canada were not up to the mark and tended to de-risk too early in someone’s lifespan.
Servick added that despite fixed income being an incredibly powerful place to deliver returns over the past 30 years, fallen rates left him deeply concerned.
He said: “The thought you could get those type of returns going forward was really scary and I personal worry about whether the industry is doing people a disservice. I was getting a feeling that this is probably not going to propel people to reach their retirement goals.”
Presenting the plan with Neil Walton, head of investment solutions, Servick said plans in Canada, compared to the US, typically collapsed risk right down to retirement, failing to take into account people’s needs for a relatively high level of income post 65, for example.
Schroders has focused on four stages of retirement strategy: pre-retirement, approaching retirement and then retirement itself, which was split into the active stage (first 20 years) and then post 85.
The approaching retirement phase is increasingly critical, Servick said.
“Overwhelmingly, people at 55 still need to double their assets by 65 and retirement. That is not well known at all or taken into account we don’t believe. If you’re just on a linear blind path de-risking into lower-rate Canadian bonds, it’s going to be mathematically impossible to reach that ability so we really felt to address that, we needed to introduce ways to give people the best opportunity to double their money.”
Walton explained that as the client gets towards 55, more of the portfolio equity weighting is in multi-assets. He advocates staying in growth assets longer for the 25% of the portfolio allocated to equities and that, between 55-65, it's important to deviate from the standard strategy that averages in the transition from equities to bonds.
He said this is done by adapting to market conditions and being more dynamic, re-risking quickly in tough conditions and staying in more favourable conditions.
Walton said: “We think this can be done better by being more aware of market conditions rather than pre-programming the reduction.”