Page 6 - Wealth Adviser Newsletter March 2025

ISSUE 107
MARCH 2025

Transfer Balance Cap and Its Impact individual’s ability and willingness to take on investment
Another crucial change is the increase in the transfer bal- risk.
ance cap to $2.05 million. This cap limits the total amount Asset allocation, the process of dividing investments
that can be transferred into the tax-free retirement phase among different asset categories such as stocks, bonds, and
of superannuation. The FirstLinks article highlights the cash, plays a crucial role in managing investment risk. As the
importance of this change: “For some retirees, this increase Australian Securities and Investments Commission (ASIC)
in the general transfer balance cap creates an opportunity states, “Asset allocation is one of the most important deci-
to transfer up to an extra $200,000 into pension phase.” sions you can make as an investor. It has a big impact on your
(FirstLinks, 2025) investment risk and returns.”
This increase in the transfer balance cap can have (Moneysmart.gov.au, 2025)
significant tax implications for retirees. Those who can
take advantage of this change may be able to reduce their Developing Effective Retirement Income
overall tax burden in retirement, as earnings on assets in the Strategies
retirement phase are tax-free. With the introduction of the retirement income covenant
in July 2022, superannuation trustees are now required to
Unpacking Investment Risk in Superannuation have a strategy to assist their members in achieving and
While understanding the new superannuation thresholds balancing three key objectives in retirement:
is crucial, it’s equally important to consider the investment 1. Maximising expected retirement income
risks associated with superannuation. As the FirstLinks 2. Managing expected risks to the sustainability and stabili-
article on investment risk in superannuation points out, ty of retirement income
“Investment risk is the possibility that the value of your 3. Having flexible access to expected funds during retirement
investments may fall or rise. This can happen due to various
factors such as market fluctuations, economic conditions, or This covenant has significant implications for how
specific events affecting particular companies or industries.” superannuation funds approach retirement income strat-
(FirstLinks, 2025) egies. As the AdviserVoice article notes, “The retirement
income covenant requires trustees to assist their members
Types of Investment Risk in Super Funds to achieve and balance three key objectives in retirement.”
Superannuation funds are exposed to various types of (AdviserVoice, 2025)
investment risk, including:
1. Market risk: The risk of losses due to overall market Retirement Income Products and Strategies
movements. In response to the retirement income covenant and
2. Interest rate risk: The risk associated with changes in changing retiree needs, a range of retirement income prod-
interest rates affecting investment values. ucts and strategies have emerged. These include:
3. Currency risk: The risk of losses due to fluctuations in 1. Account-based pensions: Flexible products that allow
foreign exchange rates. retirees to draw down their superannuation savings as
4. Liquidity risk: The risk of not being able to sell an invest- needed.
ment quickly without incurring a loss. 2. Annuities: Products that provide a guaranteed income
stream for life or a fixed term.
Understanding these risks is crucial for making informed 3. Bucketing strategies: Dividing retirement savings into
decisions about superannuation investments. As noted different ‘buckets’ for short-term, medium-term, and
in the article, “Different investment options within super long-term needs.
funds carry different levels of risk. Generally, higher-risk
investments have the potential for higher returns over the The AdviserVoice article highlights the importance of
long term, but they also come with a greater chance of short- these strategies: “Effective retirement income strategies
term losses.” (FirstLinks, 2025) should consider factors such as longevity risk, investment
risk, and the need for flexibility in accessing funds.”
The Importance of Risk Profiling and Asset (AdviserVoice, 2025)
Allocation
Given the various types of investment risk, it’s crucial for Conclusion: Adapting to the New Retirement
individuals to understand their risk profile and ensure their Planning Paradigm
superannuation investments align with their risk tolerance The evolution of retirement planning in Australia, driven
and retirement goals. Risk profiling involves assessing an by new superannuation rules and investment strategies, is

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