YOUR CLIENTs and longevity risk AFFINIA CONFERENCE WORKSHOP 12 JULY 2017

AGENDA 1 2 3 4 5 6 INTRODUCTIONS SESSION OBJECTIVES WHAT IS longevity risk? 4 HOW DO YOU MANAGE LONGEVITY RISK WITH YOUR CLIENTS? 5 The EMERGING ROLE OF THE ‘GSA’ 6 RECAP

DISCLAIMER This presentation is general information only and should not be considered a comprehensive statement on any matter and should not be relied upon as such. This presentation has not taken into account any individual’s objectives, financial situation or needs.

introductions

Introductions Sean Churchward Product Development Leader Fiona Tsang Retirement Solutions Product Manager

SESSION OBJECTIVES

The SESSION PURPOSE IS TO GAIN A SHARED UNDERSTANDING OF: What longevity risk is, and why it is so problematic. What the most common strategies for managing longevity risk are. The latest longevity risk innovation – the ‘GSA’.

What is Longevity risk?

LONGEVITY RISK Retirees are living longer Current life expectancy statistics show that most people will live well beyond their mid-80s. Life expectancy based on the lifetables is manifestly underestimated MALES HAVE A 42% CHANCE OF LIVING BEYOND 90. Females have a 55% chance. Males Females Even life expectancy + 5 years still doesn’t cover > 60% of retirees

LONGEVITY RISK Retirees are living longer A centenarian in 2055 is 62 today 122 centenarians “Not only will Australians live longer, but improvements in health mean they are more likely to remain active for longer”. Source: 2015 Intergenerational Report

LONGEVITY RISK IN YOUR EXPERIENCE… What is ‘longevity risk’, and what does increasing life expectancy have to do with it? How far into the future do your retired clients plan? How willingly do retired clients talk with you about the future?

HOW DO YOU HELP YOUR CLIENTS MANAGE longevity risk?

Longevity risk exposure Quantifying LONGEVITY RISK Many will live past here… Income generated from super and other assets Age pension Age Annual income ‘Life expectancy’ Longevity risk exposure They may be spending too much here Current modelling tools still leave uncertainty…

Your turn In your groups, discuss the following questions and nominate a speaker to present your findings. What types of solutions do you recommend for your clients to help with longevity risk? What are some advantages and disadvantages of the solutions you recommend? Time: 10 minutes

Managing longevity risk GUARANTEED INCOME NO GUARANTEE SELF INSURING RISK SHARING

The emerging role OF THE ‘GSA’

the group self annuity (‘GSA’) “Pooling longevity risk allows retirees to enjoy better living standards in retirement than they can enjoy in an account-based pension, but without any increase in the risk of outliving their savings” Source: Towards more efficient retirement income products: A paper prepared by the Australian Government Actuary for the Financial System Inquiry, 1 December 2014

ENTER THE GSA IT’s AN INVESTMENT OPTION THAT SOLVES LONGEVITY RISK. Age 65 Average life expectancy is 20 years One is going to die in 10 years time, one in 20 years time and one in 30 years time They don’t know when they are going to die Rationally, you would plan your retirement assuming you will die in 30 years time. If they each save for 30 years, as a group they have saved too much

HERE’s HOW A GSA WORKS Age 65 Age 65 Age 65 10 years 20 years 30 years Assume for each year in retirement they need $20,000 (ignore inflation and investment returns) Age 65 Age 65 Age 65 10 years 20 years 30 years Self-insuring $600,000 $600,000 $600,000 = $1,800,000 Risk sharing $200,000 $400,000 $600,000 = $1,200,000 $600,000 saving between them

Grace has a 55% chance of LIVING PAST age 90 FROM THEORY TO PRACTICE GSA CASE STUDY Grace has a 55% chance of LIVING PAST age 90 Super balance: $250,000 Annual income: $35,000 Risk profile: Balanced Grace: aged 67, retired Longevity Risk

Dave has a 42% chance of LIVING PAST age 90 FROM THEORY TO PRACTICE GSA CASE STUDY Dave has a 42% chance of LIVING PAST age 90 Super balance: $400,000 Annual income: $39,000 Risk profile: Balanced Dave: aged 67, retired Longevity Risk

What will a gsa deliver? An income that never runs out An affordable investment alternative Flexibility and control like any other investment option Returns that are not fixed at today’s rates. Diversification in a clients’ portfolios by providing returns that don’t only depend on market performance. An annuity that gives all benefits back to investors, not to a life company

RECAP