1. YOUR CLIENTs and longevity risk
AFFINIA CONFERENCE
WORKSHOP
12 JULY 2017

2. 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

3. 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.

4. introductions

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

6. SESSION OBJECTIVES

7. 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’.

8. What is Longevity risk?

9. 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

10. 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

11. 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?

12. HOW DO YOU HELP YOUR CLIENTS MANAGE longevity risk?

13. 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…

14. 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

15. Managing longevity risk
GUARANTEED INCOME
NO GUARANTEE
SELF INSURING
RISK SHARING

16. The emerging role OF THE ‘GSA’

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. RECAP