Retirement income trends accelerating

Transcription

1 Retirement income trends accelerating Citi Annual Australian Investment Conference - Sydney Dominic Stevens Chief Executive Officer 26 October 2010

2 2 Introduction Record retail sales for Challenger Annuity sales running above targets Boutique FUM growth above system Aligned investment business developing strong pipeline Changing face of the retirement sector Changes are structural and permanent driven by the demands of the retiree Changes will also benefit the supply of long term finance in the economy Our focus Expanding product lines, developing brand and increasing distribution Capturing growth from structural market changes

3 Sales accelerating across product range

4 Accelerating annuity sales growth Record 1Q11 retail annuity sales of $343m up 40% on pcp On target to deliver 20% increase in retail sales in FY11 (implying 5% net book growth) Growth in sales supported by underlying demographic, regulatory and change in risk preference trends 1H11 GIF sales on track and strengthening $m Impact of social security changes Long term retail sales continue to track above 30% growth (black line) Impact of GFC 0 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Source: CGF Quarterly retail annuity sales 4

5 Growth in boutique FUM Strong growth trend evident in 09/10 continuing Organic growth of 23% for the quarter with a strong pipeline in place Boutique partnerships expanded to ten post balance date Alphinity Investment Management commenced August 2010 Small/Micro cap boutique announced August 2010 Strong performance continuing across boutique suite $m 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Boutique Partnerships FUM ($m) Total FUM growth $5.0bn Comprising: Conversion of internal FUM $3.1bn Net flows $1.5bn Asset growth $0.4bn 0 Mar- 07 Jun- 07 Sep- 07 Dec- 07 Mar- 08 Jun- 08 Sep- 08 Dec- 08 Mar- 09 Jun- 09 Sep- 09 Dec- 09 Mar- 10 Jun- 10 Sep- 10 Source: Challenger 5

6 Aligned investment model gaining traction Ability to invest alongside a proven long term investor with robust prudentially governed investment processes Broadening institutional relationships Mandate from a large industry super fund to manage commercial property debt close to fully funded Investors continue to support our focus in the aligned model, with ~$750m of new mandates at final stages of negotiation Growing origination of Institutional/Wholesale Life products FY11 build-out of more tailored investment solutions Provide superannuation and pensions funds greater access to infrastructure/property debt and equity products We have gained significant support from Asset Consultants with our approach 6

7 Changing face of the retirement sector

8 Retirement phase is about absolute returns and risk management Trends suggest retirees will be more focussed on creating a stable income stream When capital is regularly withdrawn leverage to a negative outcome increases Whilst the market recovers from a selloff, a retiree may not as capital is too depleted Finite capital during retirement means early years are critical 8 % of Capital remaining Age 65 Notes: 1. Annuity: Based on a $100 purchase price of a 20 year term annuity at 6.3% providing the annuity holder $8.93 income per year 2. Allocated Pension Capital: Movements of capital based on All Ords Accumulation Index & annual withdrawals of $ Age 85 1

9 Retirement phase is about absolute returns and risk management Trends suggest retirees will be more focussed on creating a stable income stream When capital is regularly withdrawn leverage to a negative outcome increases Whilst the market recovers from a selloff, a retiree may not as capital is too depleted Finite capital during retirement means early years are critical % of Capital remaining Age 65 Age 78 Notes: 1. Annuity: Based on a $100 purchase price of a 20 year term annuity at 6.3% providing the annuity holder $8.93 income per year 2. Allocated Pension Capital: Movements of capital based on All Ords Accumulation Index & annual withdrawals of $8.93. Post 2010 withdrawals continue and capital assumed to grow at 10% pa

10 Retirement phase is about absolute returns and risk management Trends suggest retirees will be more focussed on creating a stable income stream When capital is regularly withdrawn leverage to a negative outcome increases Whilst the market recovers from a selloff, a retiree may not as capital is too depleted Finite capital during retirement means early years are critical 10 % of Capital remaining Age 65 Notes: 1. Annuity: Based on a $100 purchase price of a 20 year term annuity at 6.3% providing the annuity holder $8.93 income per year 2. Allocated Pension Capital: Movements of capital based on All Ords Accumulation Index & annual withdrawals of $8.93. Post 2010 withdrawals continue and capital assumed to grow at 15.54% pa Age 85 1

11 Do you believe the retiree will recover? 60,000 50,000 Full recovery requires 15.5% CAGR 40,000 30,000 20,000 Assumes 10% CAGR 10, Source: Bloomberg to 2010, All Ordinaries accumulation index, rebased to current All Ordinaries level 4,784 11

12 Structural shift in asset allocations Australia is currently the most equitised retirement market (~55%) in the OECD 1 Current allocations to bonds/notes/fixed income ~13% versus the next lowest in the OECD of ~31% (USA) 1 Individuals closer to retirement will prefer to have a more prudent asset allocation including guaranteed income products Trends are structural not transient $ trillion Fixed Interest allocation as a portion of Superannuation FUM Total Superannuation system FUM 13% Assumed Fixed Income allocation 31% Assumed Fixed Income allocation ~$500 bn 12 1 OECD Global Pension Statistics July 2010, Issue Source: Rainmaker, Super Projections Dec 2009 Roundup report and OECD Global Pension Statistics July 2010, Issue 7 (Asset allocations)

13 Structural shift in asset allocations Structural shift also has positive implications for financial markets Significant demand for longer term fixed income would ease pressure on our banking system s refinancing needs Would also see greater funds for financing Australia s long term infrastructure requirements Satisfying retirees demand for fixed income with a thriving long term corporate/infrastructure bond market creates value Life Companies/Pension funds traditionally are the global facilitators of this process 13 $ trillion By 2016 the Australian Superannuation assets may be larger than the four major banks Forecast Total Superannuation system FUM Major Bank Balance Sheet 2017 Source: Banks balance sheet growth 5% (UBS Research June 2010). Superannuation FUM: Rainmaker, Super Projections Dec 2009 Roundup report (growth assumed 15%)

14 Annuities a core retirement solution in most OECD markets Pension rules in other jurisdictions Country Full Lump-Sum Partial Lump- Sum Deferred Annuity Annuity Austria Pension Programmed Payment or Account Based Pension Belgium Germany Ireland Italy Netherlands Sweden UK Canada USA Chile Colombia 14

15 Our focus

16 Product, brand, distribution 16 Contemporary retirement products developed Platform Annuity Institutional product Liquid Lifetime With minor technical changes to regulations would launch deferred annuities Expanded distribution team and focus Demographic research to better target customers Additional resources employed, trained and implemented Project Welcome Back and Project 10,000 ongoing Significant work on brand, and advertising campaign Initial advertising campaign Market and consumer research New campaign, website re-launch

17 Initial advertising campaign 17

18 Summary Retirement income sales accelerating Supported by long term structural changes Continued focus on organic origination and product development These drivers are still at early stages Boutiques and Aligned investments growing Significant FUM growth and pipeline increasing Retirement savings are growing rapidly Retirees will desire more focus on risk management and absolute outcomes Have a critical role in the changing face of the Australian financial sector Annuities are the traditional, and best way to Channel retirement savings to Australian corporates and infrastructure projects Transform pools of corporate and infrastructure debt into income streams for retirees 18

19 Disclaimer: The material in this presentation is general background information about Challenger Financial Services Group activities and is current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered with or without professional advice when deciding if an investment is appropriate.