Top Ten Learnings on the product response to retirement

Transcription

1 Top Ten Learnings on the product response to retirement Nicolette Rubinsztein This presentation has been prepared for the 2016 Financial Services Forum. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.

2 Responses to post retirement Account based pension ( ABP ) Enhanced ABP Variable annuities Group self annuitisation product Immediate annuities Deferred annuities Defined benefit pension $495.3 bn (76.2%) $2.0 bn (0.3%)* $10.4 bn (1.6%) $142.4 bn (22%) Source: Plan For Life Actuaries & Researchers Investigation Into Retirement Account Drawings, October 2015 *0.3% includes guaranteed pension and group annuity products

3 Top 10 Learnings 1. Australians are not sufficiently protected against mortality risk 2. Members are more risk averse than you think 3. Retirement product thinking has progressed significantly in recent years, but there is still lots more progress to be made

4 Product Research UNSW & UTS Source: The University of New South Wales & The University of Technology, Sydney Choices Over Life Annuities: Optimal Decisions for Australian Retirees, May 2014 Low risk and High risk refers to the investment environment, not the asset allocation Low risk environment assumes allocated pension return of 6%, risk premium of 4% and st dev of 9% High risk environment assumes allocated pension return of 3%, risk premium of 1% and st dev of 15%

5 Product Research Portfolio Construction Forum Retirement Income Efficient Frontier Source: Why Bond Funds don t belong in Retirement Portfolios by Wade Pfau

6 100% 90% Product Research Colonial First State/ EY Customer: 67 year man Wealth: $400,000 Desired Income: $43,000 80% 70% 60% Life expectancy -10yrs Life expectancy Life expectancy +10yrs Lifetime annuity + life annuity + def annuity Variable annuity Where applicable, allocation between and Deferred annuity is 75%/25%. Deferred annuity has a 12 year deferral period. Hypothetical scenario only based on a balanced portfolio and mid-range market conditions. Past performance is no indication of future performance. Lifetime annuity + life annuity + def annuity Variable annuity Lifetime annuity + life annuity + def annuity Variable annuity 90 th Percentile Median 10 th Percentile

7 Product research Australian Centre for Financial Studies & AIST Cohort Retiree at risk of financial hardship (Single) Typical retiree (Single) Typical retiree (Couple) Wealthier retiree (Single) Retiree with adverse health (Single) Balance Home Owner Optimal Portfolio $100,000 No 100% ABP $250,000 Yes 100% ABP $350,000 Yes 100% ABP $500,000 Yes $500,000 Yes Source: Australian Centre For Financial Studies Superannuation in the post-retirement phase, August 2015 Model assumes ABP return of 6.5% p.a. Assumes retirees have no assets outside of superannuation and their primary residence 75% ABP and 25% ILA 75% ABP and 25% ILA

8 Product research Rice Warner

9 Top 10 Learnings 1. Australians aren t sufficiently protected against mortality risk 2. Members are more risk averse than you think 3. Retirement product thinking has progressed significantly in recent years, but there is still lots more progress to be made 4. The quality of the modeling is critical to the conclusions 5. Optimal outcomes are member dependent 6. Single product solutions are (currently) sub-optimal 7. Combining products in retirement makes sense 8. Digital solutions are a vital part of the future 9. Annuities will play a bigger role. Many CIPRs will involve a deferred annuity 10.Aged care is the next frontier