Fintech firm aiming for better pension models

Fintech pension balances

SMSF members will be able to better predict their future pension balances via a new series of apps under development by a retirement-focused fintech firm.

SMSF trustees and self-directed investors will be able to generate accurate assessments about their future pension balances and how long retirement savings may last via a new series of apps currently under development by an investment and retirement-focused fintech firm.

mSmart managing director Derek Condell said superannuation and pension calculations have, to date, been based on a member’s age, contributions and investment allocations, but these apps will improve on those with the addition of forecasts of the interplay between annual drawdowns and how long they may be sustained in their retirement.

“These factors are based on actuarial methods that are used in an algorithm developed by honorary associate professor at the Applied Finance Centre, Macquarie University, Dr Frank Ashe and applied to retail investments and investors,” Condell said.

“As part of this work, we have developed an economic scenario generator that simulates over the range of the possible future level of inflation and bond rates, allowing for recessions and market downturns, and varying levels of equity risk premiums over bonds.”

He said this work would allow the apps to present investment outcomes with a higher degree of certainty and allow trustees to have a picture of what their pension balances could be up to 35 years prior to retirement.

“The whole model has been driven by the SMSF sector because in a previous role where I dealt with accountants on a regular basis I was frequently asked about how could they know what the retirement balance would be in the future based on the actual investments – like shares – in a client’s SMSF portfolio,” he said.

He said the algorithm would be applied to a suite of five apps in development that would appeal to SMSFs and self-directed investors and be released to the market as the start-up business secures greater levels of investor capital.

The first product that was expected to be released was a retirement report that would predict retirement balances, pension longevity based off that balance and options to boost both, he added.

Further apps would offer portfolios of directly held equities, or exchange-traded funds (ETF), to assist in changing or initiating investment strategies. However, they would not be a trading platform, but would instead connect to brokers where users would pay a brokerage fee on each transaction, Condell said.

“The apps will be offered under a subscription model, which is the only other fee apart from brokerage that users will pay, so there will be no ongoing investment portfolio fees, and any equity or ETF transactions will be directly reported to SMSF administration service providers including BGL, Class and Supermate,” he said.

He added BGL has also signed as a distribution partner, alongside consumer-focused website SuperGuide, and mSmart is in discussions with around 30 other distributors in the superannuation, SMSF and retirement sector.

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