Schroder Investment Management. Australia. Post Retirement Solutions. Greg Cooper, CEO, Schroder Investment Management Australia Ltd.

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1 Schroder Investment Management Post Retirement Solutions Australia Greg Cooper, CEO, Schroder Investment Management Australia Ltd September 2011 Schroder Investment Management Australia Limited ABN Australian Financial Services Licence Level 20 Angel Place, 123 Pitt Street, Sydney NSW 2000

2 The order of returns matters $700,000 Account balance after drawdown $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Scenario A Scenario B $- -$100, Age Source: Schroders, Scenario A: 8% p.a for 10years then 4% p.a. Scenarios B: 4% p.a for 10years then 8% p.a. $40,000 p.a. drawdown 2

3 Percentage of Results Historically, the chances of running out of money are significant 60% Account Balance after 20 Years of CPI Indexed Drawdowns 50% 40% 30% 20% 10% 3 0% < Value of account balance at end as a multiple of the start balance. Drawdown = 8% of starting balance Source: Schroders, Datastream, Return series from 1922 to 2010, Balanced Fund proxy taken as 35% Aus equity, 30% global equity, 20% Aus bonds, 15% cash. Indices - All ords, MSCI World ex Aus, S&P500, UBS Composite, Aust govt bond 10 year rates, RBA Cash rates, UBS Bank Bill index, ABS CPI,.

4 % increase in end benefit First 20 years 1% increase in contribution rate 1% increase in earning rate 8.0% 8.2% Source: Schroders. 40 Year contributions at base contribution rate of 9% of salary, indexed at 3%p.a. Annualised earning base rate 8%p.a. 4

5 % increase in end benefit First 20 years Second 20 years 1% increase in contribution rate 1% increase in earning rate 8.0% 3.1% 8.2% 17.8% Source: Schroders. 40 Year contributions at base contribution rate of 9% of salary, indexed at 3%p.a. Annualised earning base rate 8%p.a. 5

6 Risk Tolerance This is NOT growth asset exposure! Doesn t matter Doesn t matter Pre-retirement Post Retirement Source: Schroders, Stylised 6

7 Balanced Fund vs Life Cycle % where balanced was better 70% 100% 79% Source: Schroders, Datastream. Based on 40 year accumulation of 9% of salary contributions, indexed at 3% p.a. Bottom three rows represent the actual differential in accumulated benefit over the 40 year period. Positive results mean that the Balanced fund delivered a higher end benefit that the Life Cycle fund and vice versa. 7

8 Balanced Fund vs Life Cycle % where balanced was better Worst Balanced outcome Best Balanced outcome 70% 100% 79% -8.72% 0.75% -8.72% 38.69% 4.26% 38.69% Source: Schroders, Datastream. Based on 40 year accumulation of 9% of salary contributions, indexed at 3% p.a. Bottom three rows represent the actual differential in accumulated benefit over the 40 year period. Positive results mean that the Balanced fund delivered a higher end benefit that the Life Cycle fund and vice versa. 8

9 Balanced Fund vs Life Cycle % where balanced was better Worst Balanced outcome Best Balanced outcome 70% 100% 79% -8.72% 0.75% -8.72% 38.69% 4.26% 38.69% Average outcome 8.50% 2.63% 6.80% Source: Schroders, Datastream. Based on 40 year accumulation of 9% of salary contributions, indexed at 3% p.a. Bottom three rows represent the actual differential in accumulated benefit over the 40 year period. Positive results mean that the Balanced fund delivered a higher end benefit that the Life Cycle fund and vice versa. 9

10 in the real world Risk is running out of money Relative risk and return trade-off varies considerably Valuations are very relevant Path dependency is critical A great emphasis on outcomes vs liabilities is required Current default pre-retirement products are inappropriate 10

11 Alternatives Annuity Expensive Term Annuity Life Cycle Dynamic Life Cycle Just a bond SAA based Complex Reframe the problem 11

12 options for super funds Assume self funding 65-85/90 outcome orientated portfolios CPI + 2, 3, 4 or 5% Incorporate age pension optionality for lower lump sum holders $1 per week longevity insurance Your own term annuities (misgivings aside) 12

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14 Disclaimer statement Investment presentation This presentation is intended solely for the information of the person to whom it was provided by Schroder Investment Management Australia Limited (ABN , AFSL ) (Schroders). Investment in Schroder Funds may be made on an application form in the Product Disclosure Statement (PDS) which is available from the Schroders website The information contained in this Presentation is general information only and does not take into account your objectives, financial situation or needs. Before acting on the information contained in this Presentation you should obtain a copy of the PDS and consider the appropriateness of the information in regard to your objective, financial situation and needs before making any decision about whether to invest, or continue to hold. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this presentation or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this presentation or any other person. Returns shown are before tax and fees and all income is reinvested. You should note that past performance is not a reliable indicator of future performance. Opinions constitute our judgement at the time of issue and are subject to change. The information and opinions and associated estimates and forecasts contained in this document have been obtained from or are based on sources believed by us to be reliable, but no responsibility can be accepted for error of fact or opinion. For security reasons telephone calls may be recorded. 14