YOUR CLIENTS AND LONGEVITY RISK AFFINIA CONFERENCE WORKSHOP

YOUR CLIENTS AND LONGEVITY RISK AFFINIA CONFERENCE WORKSHOP 12 JULY 2017

AGENDA 1 INTRODUCTIONS 2 SESSION OBJECTIVES 3 WHAT IS LONGEVITY RISK? 4 HOW DO YOU MANAGE LONGEVITY RISK WITH YOUR CLIENTS? 5 THE EMERGING ROLE OF THE ‘GSA’ 6 RECAP © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 1

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. © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 2

INTRODUCTIONS © MERCER 2017 3

INTRODUCTIONS Sean Churchward Product Development Leader © MERCER 2017 Fiona Tsang Retirement Solutions Product Manager This presentation is for internal training purposes only and is not to be distributed externally. 4

SESSION OBJECTIVES © MERCER 2017 5

THE SESSION PURPOSE IS TO GAIN A SHARED UNDERSTANDING OF: 1. What longevity risk is, and why it is so problematic. 2. What the most common strategies for managing longevity risk are. 3. The latest longevity risk innovation – the ‘GSA’. © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 6

WHAT IS LONGEVITY RISK? © MERCER 2017 7

LONGEVITY RISK RETIREES ARE LIVING LONGER Current life expectancy statistics show that most people will live well beyond their mid-80 s. Life expectancy based on the lifetables is manifestly underestimated MALES HAVE A 42% CHANCE OF LIVING BEYOND 90. Males Females FEMALES HAVE A 55% CHANCE. Even life expectancy + 5 years still doesn’t cover > 60% of retirees © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 8

LONGEVITY RISK RETIREES ARE LIVING LONGER A centenarian in 2055 is 62 today 122 centenarians Source: 2015 Intergenerational Report © MERCER 2017 “Not only will Australians live longer, but improvements in health mean they are more likely to remain active for longer”. This presentation is for internal training purposes only and is not to be distributed externally. 9

LONGEVITY RISK IN YOUR EXPERIENCE… 1. What is ‘longevity risk’, and what does increasing life expectancy have to do with it? 2. How far into the future do your retired clients plan? 3. How willingly do retired clients talk with you about the future? © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 10

HOW DO YOU HELP YOUR CLIENTS MANAGE LONGEVITY RISK? © MERCER 2017 11

QUANTIFYING LONGEVITY RISK Annual income ‘LIFE EXPECTANCY’ Income generated from super and other assets Many will live past here… Longevity risk exposure They may be spending too much here Age pension Age © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 12

YOUR TURN In your groups, discuss the following questions and nominate a speaker to present your findings. 1. What types of solutions do you recommend for your clients to help with longevity risk? 2. What are some advantages and disadvantages of the solutions you recommend? Time: 10 minutes © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 13

MANAGING LONGEVITY RISK GUARANTEED INCOME NO GUARANTEE SELF INSURING © MERCER 2017 RISK SHARING This presentation is for internal training purposes only and is not to be distributed externally. 14

THE EMERGING ROLE OF THE ‘GSA’ © MERCER 2017 15

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 © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 16

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 © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 17

HERE’S HOW A GSA WORKS Assume for each year in retirement they need $20, 000 (ignore inflation and investment returns) Age 65 10 years 20 years 30 years Self-insuring $600, 000 Risk sharing $200, 000 $400, 000 © MERCER 2017 = $1, 800, 000 = $1, 200, 000 $600, 000 saving between them This presentation is for internal training purposes only and is not to be distributed externally. 18

FROM THEORY TO PRACTICE GSA CASE STUDY Grace: aged 67, retired GRACE HAS A 55% CHANCE OF LIVING PAST AGE 90 Longevity Risk Super balance: $250, 000 Annual income: $35, 000 Risk profile: Balanced © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 19

FROM THEORY TO PRACTICE GSA CASE STUDY Dave: aged 67, retired DAVE HAS A 42% CHANCE OF LIVING PAST AGE 90 Longevity Risk Super balance: $400, 000 Annual income: $39, 000 Risk profile: Balanced © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 20

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 © MERCER 2017 This presentation is for internal training purposes only and is not to be distributed externally. 21

RECAP © MERCER 2017 22

© MERCER 2017 23