The least mathematical and most contextual note of the course — and directly examinable. It maps the Australian superannuation industry (the world's fourth-largest retirement pool and the likely employer of many students taking this course): who the players are, how money and fees flow, how the YFYS performance test disciplines funds, and — the conceptual payoff — why retirement investing changes the definition of risk. The sequence-risk example is the key calculation: identical average returns, half a million dollars of difference, purely from ordering. That observation motivates the entire retirement-product landscape (lifecycle funds, bucket strategies, annuities, guarantees) and sets up the pricing problem of stochastic modelling for retirement products.
Learning objectives. By the end of this note you should be able to:
- describe the scale and structure of Australian super and the DB/DC distinction;
- name the roles in the system (trustee, manager, consultant, administrator, custodian) and the fee/tax structure;
- explain the YFYS performance test mechanics and its critiques;
- demonstrate sequence risk with the recursion and explain the retirement risk zone;
- describe the Retirement Income Covenant's trilemma and the product spectrum that responds to it.
In this lesson
- 1.1 The superannuation market
- 1.2 Investment structure
- 1.3 The YFYS performance test
- 1.4 Risk is different in retirement
- 1.5 Retirement income products
The full lesson, with worked examples and exercise solutions, is for members.
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