Jeremy  Cooper,  chairman,  re+rement  income,  Challenger  

The  great  challenge:  From  superannua+on  to  a  super  annuity?  

December roundtable

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Key themes from December roundtable

•  The lump sum is not coping •  We need to ‘change the promise’ – per PJ Keating

•  Wealth accumulation v income stream provision •  Focus on retirement income outcomes •  Retirees have different needs and goals •  Need a separate suite of products for retirement

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Key themes from December roundtable

•  Current lump sum system just shoots for a hypothetical average member

•  Need to move away from ‘peer risk’ worries •  Income-centric focus is very foreign for the industry at

the moment •  But is it really that much of a change?

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Key themes from December roundtable

•  Now that we are getting decent balances, how can we tailor for individual needs?

•  Sequencing risk is an inherent problem in DC super funds – increasing in significance around the time of retirement

•  ‘Replace my wage…’ •  Need to move on income projections in super (which

would include Age Pension calculations)

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Key themes from December roundtable

•  Does the industry need a mandatory template from the Government; a clear set of rules on post retirement?

•  Advice is critical for retirees and pre-retirees •  Cohort analysis and the road to individualisation

–  Age, wealth, liquidity, income needs and so on •  Two members: one is going to live to 74, the other to

94 – what can be done about this?

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Super does not manage retirement risks!

Inflation

Market risk (including sequencing)

Longevity

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Key out-takes I

1.  The thinking and solutions of super funds need to change from providing a lump sum of an indeterminate amount to an income stream more tailored to the member’s needs.

2.  Despite competing interests, the industry needs to act together to make this change.

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Key out-takes II

3.  The industry needs guidance and clear parameters from government on what is required to achieve this.

4.  There is a role for deferred annuities and the Australian market needs to be more competitive in the provision of those products.

5.  Australian super funds are committed to the huge amount of work they need to do to adequately provide retirement income for their members.

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An implementable solution: menu option of a real income stream

Wants

Needs

Spending

Age Pension (safety net only)

Market-linked income

Longevity cover

Secure inflation-adjusted income

Source of retirement cash flows

Allocations for a typical $200,000 account

Portfolio today

Market linked Secure Income Longevity

Ultimate portfolio

Market linked Secure Income Longevity