RG 146 ‘deficient’ in longevity risk management

In a submission to the government’s inquiry into adviser standards, Challenger said it is vital “this deficiency is addressed in ASIC’s current review of RG 146”.

The submission said RG 146 fails to cover longevity risk management, the life expectancy of individuals, the principal retirement risks, the implications of sequencing risk and the use of longevity insurance and other lifetime products to manage risk and deliver income.

It called for a specific topic covering sequencing risk to be included in the RG 146 curriculum.

“Training in portfolio theory appears to miss this distinction between average returns and individual investor outcomes, determined by the timing of the individual’s investment relative to adverse events,” said Challenger.

“The implications of this for a consumer’s actual investment experience justify a specific focus in this area.”

The submission said RG 146 should enable an adviser to explain life expectancy to clients and the main financial risks in retirement.

It also argued RG 146 should provide an understanding of sequencing risk, post-retirement product types and the extent to which product features do or do not manage retirement risks as well as the expected costs of health and aged care and the choices available to retirees.