Aaron Minney

Only 40 per cent of Australia’s superannuation fund members expect to have a comfortable or better lifestyle in retirement, according to a survey of over 3,000 super fund members aged over 45, commissioned by Challenger Life.

The survey of superannuation fund members revealed that older people were more likely to expect comfort in retirement, at 46 per cent compared to only 35 per cent of respondents aged under 55. The majority (54 per cent) of those already retired considered their lifestyle to be comfortable.

Challenger’s Head of Retirement Income Research, Aaron Minney said the disparity could partially be explained by older people having more savings while younger savers had yet to see the fruits of compounding returns. The survey also showed the typical super fund member did not think about retirement risks in the same way as superannuation professionals, Mr Minney said.

“Many members did not know what longevity risk [outliving their retirement nest egg] means and importantly how it can be managed. There is this one-sided concern that they might outlive their savings rather than also thinking about solutions that can provide secure lifetime income.

“There were also some clear distinctions across groups that reported higher levels of concern. Aside from the obvious, that people with less savings are more worried about their finances in retirement, the survey also highlighted that; women, people under 65 and those expecting a basic lifestyle are more likely to be concerned about outliving their retirement savings.”

When asked about their ‘plan B’, the majority of respondents (57 per cent) said they would adjust their lifestyle by changing their spending habits to manage the risk of running out of money. The survey confirmed that people with a financial plan (whether formal or not) tended to have lower concerns. 39 per cent of people with a plan were not concerned about outliving their savings, compared to only 17 per cent of those without a plan.

Nearly half (47 per cent) indicated they had a mental plan, whilst only 13 per cent said they had a formal plan. People over 70 were twice as likely to have a financial plan.

When asked about a product which provided a guaranteed lifetime income stream as well as regular payments that might move with market performance, 67 per cent said this would be an appealing product.

Mr Minney said that while superannuation funds will need to gather their own insights on their members, this research was a useful starting point in understanding how fund members feel about their retirement income planning.

“This survey shows that super fund members have an interest in solutions that balance their risks in retirement, which really speaks to the purpose of the Retirement Income Covenant. It’s really clear that the majority of members are concerned about outliving their savings so it will be important for funds to find solutions that will help overcome this concern, support members with plans that help them understand retirement risks, and ultimately lead to better financial outcomes for their members.”

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Angela Murphy

Challenger Life, Australia’s largest provider of annuities, has announced a new market-linked lifetime annuity that helps retirees to overcome longevity risk (outliving their retirement nest egg) while maintaining exposure to investment markets.

Challenger has introduced innovative market-linked payment options to its award-winning Liquid Lifetime annuity, creating more choice in retirement incomes ahead of the introduction of the Australian government’s Retirement Income Covenant next year.

The market-linked option is available to financial advisers and their clients, and adds to Challenger’s institutional offering, providing superannuation funds with direct access to the market-linked capability and the flexibility to integrate as a bespoke solution within their retirement income strategy.

Challenger Life Chief Executive, Angela Murphy said the new market-linked lifetime annuity is part of a broader strategy by Challenger to lead industry innovation, expand its range of innovative retirement income solutions, increase customer reach and provide retirees with better financial outcomes. It complements Challenger’s range of guaranteed income annuity options to help solve a key retirement problem for advisers and their clients. It also provides a flexible and powerful capability that can help super funds address longevity risk, she said.

“An unprecedented number of Australians retire every day. We want them to get the retirement they deserve, one in which they spend well and live well. While many retirees enjoy the safety and security of a guaranteed income stream and no market risk, others may prefer to have exposure to investment markets’ ups and downs.

People are living longer, and many retirees are more financially aware than in the past. They want to stay invested in markets to have the potential to grow their income over time while accepting some downside risk.

“Our market-linked lifetime annuity will be offered to retirees as the government moves to legislate the Retirement Income Covenant. The Covenant will, over time, create a deeper market in retirement income solutions, that will give retirees more choice and flexibility in how they manage their retirement savings.”

Ms Murphy said the new annuity option was developed with financial advisers to help deliver suitable outcomes for their clients.

“Challenger consulted with a wide range of advisers in designing the market-linked lifetime annuity, with more than 80 per cent of advisers saying they would seriously consider the option to complement their clients’ other sources of income,” she said.

“Lifetime annuities are not an all or nothing proposition. They can be part of a retirement portfolio and complement other sources of income in retirement. Annuities make your retirement income last a lifetime and enable you to spend confidently. They provide certainty and control over estate planning outcomes and most importantly help to overcome the worry that you might become wholly dependent on the Age Pension.

“Combining the benefit of a regular income and exposure to investment markets, with the flexibility to review annually, is a compelling option that will drive strong interest from advisers and their clients. The combination will help overcome the anxiety many retirees have about outliving their retirement savings.

“In launching the market-linked indexation payment options, we have provided financial advisers with an opportunity to introduce the lifetime annuity concept to clients earlier while the client may have a higher risk-return tolerance and then, over time, adjust the risk profile inside the annuity to match the client’s reducing risk tolerance,” Ms Murphy added.

At 30 June 2021, Challenger Life had $22 billion in assets under management. The company has been at the forefront of the evolution of the annuity market for nearly 25 years and provides thousands of Australians with a regular income.

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