Savings and Investment Behaviour in Australia

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1 RETIREMENT SOLUTIONS Savings and Investment Behaviour in Australia NTAC:3NS-20

2 What could derail the journey to retirement? Understanding pitfalls can lead to a stronger retirement in Australia Savings Leakage Investment Pitfalls NTAC:3NS-20

Partial Pension 25% No Pension Benefit Source: Australian

3 Savings adequacy More than half of adults invest outside of institutional superannuation 50% Full Age Pension 25% Partial Pension 25% No Pension Benefit Source: Australian Government. Deloitte: ASX Australian Investor Study, 2017.

Minimum Age for accessing superannuation benefits Australia 43% 75% 55 * Other OECD Countries

4 How does Australia compare? Are members incentivized to work longer? Replacement Rate for Average Wage Earner Percentage of Retirees that Receive an Age Pension Minimum Age for accessing superannuation benefits Australia 43% 75% 55 * Other OECD Countries 63% 25% 65 *Subject to meeting qualifying criteria OECD; Pensions at a Glance: How Does Australia Compare? 5 December 2017

Build Commitment, Mitigate Leakage Workers may spend their savings if viewed as play money 82% Of all demographics want portfolio protection from significant market losses Source:

5 Build Commitment, Mitigate Leakage Workers may spend their savings if viewed as play money 82% Of all demographics want portfolio protection from significant market losses Source: Cerulli Associates, Rethinking Risk for U.S. Millennials. Sabrina Bailey and Gaobo Pang, 2016, The $10,000 Hurdle, Northern Trust, based on consolidated data from academic and industry reports.

6 Influences on investment Many variables have an impact on investing for retirement Risk Appetite Investor Behaviour Human Capital $ $

Risk Appetite Varies Among Investors Millennials prefer experiencing some upside risk, while mitigating downside risk Workers 24% 38% 16% 3% 20% Retirees 12% 32% 21% 2% 32% Source: Northern Trust

7 Risk Appetite Varies Among Investors Millennials prefer experiencing some upside risk, while mitigating downside risk Workers 24% 38% 16% 3% 20% Retirees 12% 32% 21% 2% 32% Source: Northern Trust Asset Management, DC Survey, Northern Trust Asset Management; DC Survey, Northern Trust Asset Management surveyed 1000 participants and 300 retirees to examine attitudes in retirement investing. All respondents currently are or were previously enrolled in a 401(k) plan through their employer in the private sector. Research Partner: Greenwald & Associates

Evaluating Return-Chasing Behaviours Members say they can handle risks, but not really 15.00 Panic at Bottom, Flight to Safety 2,500 Transfer in(+)/out(-) normalized variation from average level 10.

8 Evaluating Return-Chasing Behaviours Members say they can handle risks, but not really Panic at Bottom, Flight to Safety 2,500 Transfer in(+)/out(-) normalized variation from average level Stable value Growth equity fund S&P500 Index (right axis) Flight to Safety 2,400 2,300 2,200 2,100 2,000 1,900 1,800 Market Value 40% Panic; Exit at Bottom 1,700 1,600 Missing the ten best days of performance during the last ten years significantly reduces an investor s account balance ,500 Source: Northern Trust Retirement Solutions; For illustrative purposes only. Datastream calculations for MSCI World Index in AUD 1 Aug 2007 to 11 Dec 2017.

9 Participant behaviour in lifecycle portfolio Downside market volatility may lead to negative behaviour by younger participants U.S. Lifecycle Interportfolio Net Transfers Older Participants (Income, 2010, 2015, 2020) Younger Participants (2060, 2055, 2050) Standardized Net Transfers -0 + Recent evidence confirms behavioural patterns impact lifecycle portfolios 6/02/ Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Feb Feb-2018 Source: Northern Trust Retirement Solutions. Data set includes 15 DC plans with over $135B in plan assets.

10 Human Capital Impact on investment strategies Equity exposure should generally decline when workers get older Avoid aggressive investing based on age alone Source: Northern Trust Retirement Solutions; For illustrative purposes only

11 Sharpening the strategies Addressing varying risk appetite, robustness and cycles of factor-based solutions Source: Northern Trust Retirement Solutions; For illustrative purposes only

12 Important Information Important Notice for Australian / New Zealand Investors Pursuant to Class Order/transitional relief granted by the Australian Securities and Investments Commission (ASIC), Northern Trust Global Investments Limited ( NTGIL ) is exempt from the requirement to hold an Australian Financial Services Licence ( AFSL ) under the Corporations Act. NTGIL is authorised and regulated by the FCA under UK laws, which differ from Australian laws. Similarly, The Northern Trust Company of Hong Kong Limited ( TNTCHK ) is exempt from the requirement to hold an AFSL under the Corporations Act. TNTCHK is authorized and regulated by the SFC under Hong Kong laws, which differ from Australian laws. For investors in Australia, this material is directed to and should only be accessed by professional investors within the meaning of the Corporations Act 2001 (Cth) and is not intended for retail clients. For investors in New Zealand, this material is directed to and should only be accessed by registered financial service providers and is not intended for retail clients. The Northern Trust Company ABN holds AFSL No This information is intended for purposes of Northern Trust marketing of itself as a provider of the products and services described herein and not to provide any investment recommendations or advice within the meaning of the Department of Labor s Final Fiduciary Rule (29 CFR ). Northern Trust is not undertaking to provide impartial investment advice or give advice in a fiduciary capacity to the recipient of these materials. To the extent that the recipient of these materials has authority to act on behalf of a benefit plan that is subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ( ERISA ), Northern Trust provides information with the understanding that the recipient: (1) is a fiduciary under ERISA with respect to any plan transaction(s) contemplated herein and is responsible for exercising independent judgment in evaluating any such transaction(s); (2) is independent of Northern Trust; (3) is a bank or similarly regulated financial institution, insurance carrier, registered investment adviser, registered broker-dealer, or a plan fiduciary that holds, or has under management or control, total assets of at least $50 million; (4) is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies. Please advise Northern Trust immediately if any of the foregoing understandings is incorrect. Further, Northern Trust and its affiliates receive fees and other compensation in connection with the products and services described herein as well as for custody, fund administration, transfer agent, investment operations outsourcing and other services rendered to various proprietary and third party investment products and firms that may be the subject of or become associated with the services described herein. Northern Trust Asset Management is composed of Northern Trust Investments, Inc. Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors Inc., 50 South Capital Advisors, LLC and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois U.S.A.

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