Mercer consultants have told a gathering of institutional investors and advisers they must incorporate longevity pooling into portfolios to provide the peace of mind retirees want.

Mercer Australia senior actuarial partner Dr David Knox argued that investment managers need to take “an integrated, more holistic approach than just concentrating on investment portfolios”.

He said longevity pooling should be incorporated into retirement income portfolios in a way “that maintains the growth ratio, the exposure to growth assets, and the expected return, and also ensures clients don’t run out of money in their later years”.

Mercer’s latest research found that about 54 per cent of Australians will have less money than they need for the retirement lifestyle they desire. On average, retirees are likely to outlive their savings by more than five years, and 25 per cent are expected to outlive their savings by 11 years. Hence, many retirees are conservative in their spending and are actively saving throughout their retirement, due to the fear of this longevity risk.

The 2014 Financial System Inquiry found that most retirees draw down their account-based pensions at the minimum allowable rates, and recommended policies to encourage longevity pooling so retirees could afford to “draw down at a faster rate” and therefore have a better retirement lifestyle.

Read full news here: Investment Magazine