Fixed-interest inflation-indexed investments would suit the needs of self-funded retirees running their own super fund very well, a recent SMSF study conducted by financial services research house DEXX&R concluded.
The latest edition of the “DEXX&R Market Projections Report” anticipated continued growth in SMSF assets that funded retirement. Combining this forecast with SMSF retiree investor sentiment of low risk and income certainty, the research house also predicted high demand in the coming years for fixed-income products that offered protection against inflation.
“The issuance of medium and long-term inflation-linked bonds by commonwealth and state governments in Australia would meet self-funded retiree demand for a low-risk and stable income stream and provide a pool of medium to long-term capital that could be used to fund infrastructure development,” the report said.
Apart from satisfying their investment requirements, DEXX&R said inflation-linked bonds would provide SMSF members added value in other areas as well, such as providing them greater portfolio liquidity if a secondary market for the bonds was established, lowering their longevity risk as the chances of their income stream running out before death was diminished, and providing a low-risk investment option for the surviving member of the fund upon the death or incapacity of the other member.
The report also revealed at June 2013 more than 50 per cent, or $296 billion, of Australia’s total $506 billion of SMSF assets were held in the retirement or pension phase of the fund.
And this pool of assets used to fund retirement was predicted to increase over the next decade.
“By 2023, SMSF retirement phase assets in Australia are projected to reach $562 billion and account for 61.5 per cent of a total of $914 billion in retirement income assets,” DEXX&R said.
