Super funds should pay more attention to a risk factor to properly assess their members' decisions and behaviour, instead on focusing only on a long-term perspective, Milliman said.
Commenting on a Productivity Commission's draft report "How to assess the superannuation system's performance", Milliman's study stated funds often failed to acknowledge the underlying goals of an ageing population and the consequences of the global financial crisis.
Milliman's principal and senior consultant, Wade Matterson, said that although a long-term measure of 20 years effectively captured risk-adjusted returns, it did not reflect the reality of investors.
"A 20-year long-term perspective may effectively capture risk-adjusted returns but it does not reflect the damaging risk of investor behaviour, which all too often destroys real returns," he said.
Matterson also indicated that older age groups were more active following negative share market return periods while younger age groups were more active following positive market return periods.
He explained that after the global financial crisis, trends showed five to seven per cent of fund members shifted to lower risk investment strategies and these were often older members, who had larger balances and had contributed more to their super, being the group which had the most to lose.
According to Milliman, it was the ‘unseen risk' that most often derailed retirement plans, and super funds should learn to better link risk to members' goals.
Matterson said this would require the funds to use far greater actuarial and technical firepower to analyse the individual needs of their members as well as to make fewer assumptions about what their members require.
Subsequently, super funds would need to forge a far closer relationship with members to strengthen communications and tailor investment strategies and product solutions.
"This is a harder path for funds but one that will differentiate them from other funds and create closer ties with members," Matterson said.