1. Retirement is different
January 2017
Considerations and opportunities

2. This information is current as at January 2017 unless otherwise specified and is provided by Challenger Life Company Limited ABN , AFSL (Challenger), the issuer of the Challenger Annuities (Annuity). It is intended to be general information only and not financial product advice and has been prepared without taking into account any person’s objectives, financial situation or needs. Investors should, before making any investment decision, consider its appropriateness having regard to these matters and the information in the product disclosure statement (PDS) for the relevant Annuity before deciding whether to acquire or continue to hold an Annuity.  A copy of the PDS is available at or by contacting our Investor Services Team on
Where examples, hypotheticals or case studies are used, they are used for illustrative purposes only.   They are not to be relied on and do not reflect any person’s particular objectives, financial situation or needs. This information may also include statements of opinion, forward looking statements, forecasts or predictions based on current expectations about future events and results. Any such statements are subject to change and actual results may be materially different from those shown. This is because outcomes reflect the assumptions made and may be affected by known or unknown risks and uncertainties that are not able to be presently identified.  The taxation, Centrelink and Department of Veterans’ Affairs (DVA)  information and illustrations are based on current law at the time of writing which may change at a future date.  Challenger is not licensed or authorised to provide tax, social security or DVA advice.  We strongly recommend that professional taxation, social security and/or DVA advice for individual circumstances be sought. Past performance is not a reliable indicator of future performance.
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3. Agenda Retirement is different Key retirement considerations
Longevity – the ‘how long’ of retirement
Sequencing – the down and ups of markets matter
Inflation – the ability to maintain spending power
Managing changes for and in retirement
Age Pension changes
Super and income stream changes
Reviews – integral to success

4. Retirement is different
A time of change
Retirement brings a host of challenges and uncertainties
You will no longer be receiving a regular income from employment
You may rely on a combination of superannuation, other investments and the Government Age Pension
Lifestyle changes

5. Retirement is different
What does your retirement look like?

6. Retirement is different
What does your retirement look like?
Sydney Morning Herald, Sydney 4 August 2015.

7. What is important to retirees
National Seniors Australia Survey
1. Health
Medium priority
Low priority
High priority
2. Longevity
3. Peace of mind
4. Inflation
5. Volatility
6. Accessibility
Source: National Seniors Australia – Retirees’ Needs and Their (In)Tolerance for Risk – March 2013.

8. Retirement is different
Success through careful consideration
Managing some of the key risks in retirement is an important part of achieving a successful retirement
Longevity
Sequencing
Inflation

9. Retirement is different
Longevity

10. Retirement is different
How long do you expect retirement will be?
Australian Life Tables produced by the Australian Government Actuary.

11. Retirement is different
Longevity a key retiree consideration
Source: Challenger estimate from Australian Life Tables with 25 year mortality improvement factors from AGA.

12. Retirement is different
Australian’s own expected life expectancy
Age group
Average estimation of own life expectancy
Intergenerational Report
Underestimation
50 to 54
81.4
88.5
-7.1
55 to 59
82.8
88.2
-5.4
60 to 64
83.5 88
-4.5
65 to 69 84 -4
70 to 74
85.4
88.3
-2.9
75 to 79
86.9
88.9 -2
Source: National Seniors Australia, How realistic are senior Australian’s retirement plans July 2014.

13. Retirement is different
Investments

14. Retirement is different
The addition of returns
TRUE or FALSE? Initial investment of $100,000… -5% return in year 1 and then +5% in year 2 Investment after 2 years is $100,000

15. Retirement is different
The addition of returns
TRUE or FALSE? Initial investment of $100,000… -5% return in year 1 and then +5% in year 2 Investment after 2 years is $100,000
FALSE
$100,000 after -5% return = $95,000
$95,000 after +5% return = $99,750
In fact, on $95,000 a 5.263% was required to be equal!

16. Retirement is different
Order of returns
Initial investment of $100,000…no withdrawals -5% return in year 1 and then +5% in year 2 equals $99,750 at the end of year 2 Would the answer be the same if the returns were reversed? YES or No

17. Retirement is different
Order of returns
Initial investment of $100,000…no withdrawals -5% return in year 1 and then +5% in year 2 equals $99,750 at the end of year 2 Would the answer be the same if the returns were reversed? YES or No

18. Retirement is different
Sequence in retirement
Initial investment of $100,000…$5,000 p.a. withdrawals1… -5% return in year 1 and then +5% in year 2 equals $90,006 at the end of year 2 Would the answer be the same if the returns were reversed? YES or No?
Assumes withdrawals are made regularly during the year

19. Retirement is different
Sequence in retirement
Initial investment of $100,000…$5,000 p.a. withdrawals1… +5% return in year 1 and then -5% in year 2 equals $90,006 at the end of year 2 Would the answer be the same if the returns were reversed? YES or No
$100,000 after -5% return = $90,125
$90,125 after +5% return = $89,506
Assumes withdrawals are made regularly during the year

20. Retirement is different
Sequencing risk – Order does matter in retirement
Source: Challenger estimates using ABS, S&P/ASX accumulation with UBS and Commonwealth bank bond indices .
Assumes retiree draws ASFA comfortable standard of living $42,254 indexed to CPI each year.

21. Retirement is different
Inflation
Assumes annual inflation of 2.5%

22. Retirement is different
Maintaining your purchasing power

23. Retirement is different
The government safety net

24. Managing changes in and for retirement
Importance of reviewing your retirement strategies
Age Pension impacted by Assets Test changes (1 Jan 17)
$1.6m “transfer balance cap” to tax-free super pensions (1 Jul 17)
Age Pension age increases
(1 Jul 17)
Earnings of TTR pensions subject to super accumulation rate tax (1 Jul 17)
Super contribution rules changed (1 Jul 17)
Enhanced retirement income streams available (1 Jul 17)

25. Managing changes for and in retirement Age Pension changes

26. 1 January 2017 Assets Test changes
Assets Test thresholds
Assets Test thresholds above which Age Pension entitlements start to reduce
Thresholds before 1 January 20171
Thresholds from 1 January 2017
Change
Single, homeowner
$209,000
$250,000
$41,000
Single, non-homeowner
$360,500
$450,000
$89,500
Couple, homeowner
$296,500
$375,000
$78,500
Couple, non-homeowner
$448,000
$575,000
$127,000
1 Thresholds as at 20 September 2016

27. 1 January 2017 Assets Test changes
Assets Test taper rate
Assets Test taper rate increased from $1.50 p.f. per $1,000 to $3.00 p.f. per $1,000 above the Assets Test thresholds on 1 January 2017
Assets Test upper thresholds reduced (above which the Age Pension is not payable)
Upper thresholds before 1 January 20171
Upper thresholds from 1 January 2017
Single, homeowner
$793,750
$542,500
Single, non-homeowner
$945,250
$742,500
Couple, homeowner
$1,178,500
$816,000
Couple, non-homeowner
$1,330,000
$1,016,000
1 Thresholds as at 20 September 2016

28. 1 January 2017 Assets Test changes
Measuring the impact (single, homeowner)
Assessable assets
Age Pension prior to 1 January 2017
Age Pension on 1 January 2017
Reduction in Age Pension
$100,000
$22,805 $0
$200,000
$22,056
$300,000
$19,256
$18,905
$351
$400,000
$15,356
$11,105
$4,251
$500,000
$11,456
$3,305
$8,151
$542,500
$9,798
$600,000
$7,556
$700,000
$3,656
$800,000
Assumes all assets are financial assets and asset values are the same before and after 1 January 2017.
Age pension prior to 1 January 2017 based on rates and thresholds as at 20 September 2016.

29. 1 January 2017 Assets Test changes
Measuring the impact (couple, homeowner)
Assessable assets
Age Pension prior to 1 January 2017
Age Pension on 1 January 2017
Reduction in Age Pension
$200,000
$34,382 $0
$300,000
$33,915
$400,000
$30,346
$32,290
($1,944)
$500,000
$26,446
$24,632
$1,814
$600,000
$22,546
$16,832
$5,714
$700,000
$18,646
$9,032
$9,614
$800,000
$14,746
$1,924
$12,822
$816,000
$14,122
$900,000
$10,846
$1,000,000
$6,946
$1,100,000
$3,046
$1,200,000
Assumes all assets are financial assets and asset values are the same before and after 1 January 2017.
Age pension prior to 1 January 2017 based on rates and thresholds as at 20 September 2016.

30. 1 January 2017 Assets Test changes
Impact on concession cards
Those who lose their Age Pension completely will lose their Pensioner Concession Card but will be automatically entitled to a Commonwealth Senior’s Health Card and Low Income Health Care Card
Indefinitely exempt from the usual income test requirements
Provide some, but not all, of the benefits of the PCC
provides benefit comparison

31. 1 January 2017 Assets Test changes
Strategic opportunities
Appropriate valuation of non-financial assets
Improvements to the family home
Spending
Gifting
Funeral bond / prepaid funeral expenses
Super for a spouse less than Age Pension age
Lifetime annuity

32. Simon and Susan Case study using a lifetime annuity
Simon and Susan (aged 65) are a couple and own their home
They have $300,000 each in account-based pensions (commenced in July 2015)
They have $30,000 in cash/term deposits and $20,000 in personal assets
Their investor risk profile is 50% defensive and 50% growth
They have a target income (from all sources) of $60,000 p.a. (around the ASFA “comfortable” retirement standard)
Age Pension is currently $12,9321 per annum
They are considering alternatives to help them maintain their current lifestyle in retirement
Based on Centrelink rates and thresholds as at 1 January 2017

33. Simon and Susan Reducing value under the Assets Test
Simon and Susan’s adviser has recommended considering a partial allocation to lifetime annuities1 with 25% of their Account Based Pension assets ($75,000 each)
Simon’s life expectancy is 19.22
Susan’s life expectancy is 22.05
$75,000 / = $3,902
$75,000 / = $3,401
1Challenger Liquid Lifetime Annuity (Regular Income Option) featuring guaranteed income payments for life, 15 year guaranteed death benefit and 15th year 75% guaranteed withdrawal value. PDS available from Clients should seek appropriate financial advice.

34. Simon and Susan Blend the annuity with existing investments Strategy
Account-based pension
$225,000
Lifetime annuity
$ 75,000
Total
$300,000
40%

35. Simon and Susan Achieving a strategic outcome .
Source: Challenger Age Pension Calculator, 8 December Centrelink rates and thresholds as at 1 January Lifetime annuity includes nominal payments, regular income option and maximum withdrawal guarantee (75% after 15 years) and death benefit. Calculator and quotes available from challenger.com.au. ABP assets assumed to earn 5.70% p.a. (growth) and 3.15% p.a. (defensive) net of platform, investment and advice fees.

36. Managing changes for and in retirement Super and income stream changes

37. Super and income stream changes
$1.6 million ‘transfer balance cap’
Effective 1 July 2017
$1.6 million1 cap on total amount of superannuation transferred to retirement phase
Excess amount above the cap must be removed from retirement phase
Where there is an excess amount above the cap, ‘excess transfer balance tax’ applies to notional earnings on that excess amount
Transitional rules for existing income streams at 1 July 2017
Indexed in $100,000 increments on an annual basis in line with Consumer Price Index

38. Super and income stream changes
Taxation of transition to retirement (TTR) Pension assets
Effective 1 July 2017
Remove the tax exemption on earnings for TTR pension assets
Earnings taxed at maximum of 15%
Applies to all TTR pensions (existing and new)
Option to roll TTR pension to an account based pension (with tax-free earnings) on meeting a condition of release
Retirement, attaining age 65 etc

39. Super and income stream changes
Concessional contributions
Improved access to concessional contributions
“10% rule” removed from 1 July 2017
Deductible personal contributions for all
$25,000 concessional contributions cap from 1 July 2017
Down from $30,000/35,000 per annum
Catch-up concessional contributions from 1 July 2018
Five year unused carry-forward where super balance is < $500,000
Additional tax on concessional contributions for more higher income earners
Additional 15% tax income threshold falls from $300,000 to $250,000 per annum from 1 July 2017

40. Super and income stream changes
Non-concessional (after-tax) contributions
Annual $100,000 non-concessional contributions cap from 1 July 2017
Only available where total super assets are < $1.6m
3-year draw forward rule continues (up to 3 x $100,000)
Opportunity to use current cap (up to 3 x $180,000 before 1 July 2017)

41. Reviews Keeping on track to succeed

42. Retirement is different
Keep things on track
Personal changes
Financial changes
Future cash flow needs
Retirement Vision
‘review and update’
Review investments for changes
Adapted from GDC Research and Practical Perspectives, Serving retirement income clients: A best practices guide for advisors

43. Retirement is different
Financial advice covers many areas

44. Any questions?