Complementing the Standard Risk Measure

In Complementing the Standard Risk Measure: Framing Super as an Investment for Retirement, superannuation actuaries Estelle Liu, Ian Fryer, David Carruthers and Hailey Cai provide a more meaningful view of long-term risk.  

In brief:

• When investing super for retirement, relying on the Standard Risk Measure (SRM) focuses on short-term losses and misses what really matters: not having enough money to retire comfortably. 
• A new long-term investment risk measure – the Adequacy Risk Measure – should be introduced to complement the existing Standard Risk Measure (SRM) used in super product disclosures. 
• The proposed Adequacy Risk Measure estimates the probability that an investment option will fall short of a target net investment return of CPI + 3% per annum over a 20-year period.
• For members focused on building adequate retirement savings, the Adequacy Risk Measure would be more useful than the SRM in helping them make sound investment decisions.
• Some super funds are already leading on this – this paper discusses the benefits to consumers of broader industry and potentially policy adoption.