Retirement Portfolio Resilience Perspective
Category: Government Policy & Industry Research
This article examines the Australian Treasury's framework for Comprehensive Income Products for Retirement (CIPRs) and considers its implications for retirement portfolio construction and retirement risk management.
The article explores how retirement portfolios should be assessed across multiple dimensions, including sequencing risk, market risk and capital sustainability, rather than by investment returns alone. Viewed through today's Retirement Portfolio Resilience Framework, it reflects Gyrostat's long-standing commitment to improving retirement outcomes through disciplined portfolio construction, embedded risk management and complementary portfolio functions that help investors remain financially and emotionally invested throughout their retirement journey, regardless of the path markets take.
This article forms part of Gyrostat's broader body of government policy engagement, industry research and educational resources that contributed to the development of the Retirement Portfolio Resilience Framework.
Executive summary:
- The Australian Government Treasury (Treasury) discussion papers on retirement income highlight the increasing focus on a more comprehensive risk assessment of retirement income products.
- The risk assessment considers the following factors:
- the amount of periodic income the product would be expected to provide;
- the likelihood that income may fall short of that expectation in a given period;
- the degree of protection the product provides against the risk of running out of money; and
- the level of access to the underlying capital or for lump sum withdrawals.
- For a product to perform well, judged by these factors, it will need to address market risk, sequencing risk, and liquidity. Products with risk mitigation strategies, protection factors, or conservative investment categories, create fewer downside variations and therefore will have lower risk scores.
- The Gyrostat Absolute Return Income Equity Fund (“Fund”) buys and holds ASX-20 shares with lowest cost protection always in place with upside. Regular income at BBSW90 + 3% is delivered by passing through dividends. Gyrostat has for 34 consecutive quarters operated within a 'hard' defined risk parameter (no more than 3% capital at risk with our maximum draw-down 2.2% in any circumstances) always in place.
- With the evolution of our investment processes and raising the ‘hard’ quarterly risk tolerance from 2% to 3% (in February 2019) we anticipate returns in all market environments to exceed BBSW90 + 3% (enabling retirees to receive income and capital growth.)
