1 00:00:04,110 --> 00:00:06,900 Sean Aylmer: Welcome to the Fear & Greed Daily Interview. I'm Sean Aylmer. 2 00:00:07,260 --> 00:00:10,049 Sean Aylmer: There's been a huge focus in the last few years 3 00:00:10,050 --> 00:00:13,709 Sean Aylmer: on superannuation, changes to the super guarantee as well as 4 00:00:13,710 --> 00:00:17,490 Sean Aylmer: a whole range of super reforms, highlighting poor performing funds 5 00:00:17,670 --> 00:00:20,820 Sean Aylmer: has drawn a lot of attention to saving for retirement. 6 00:00:21,120 --> 00:00:24,239 Sean Aylmer: But is the focus on performance in the accumulation phase 7 00:00:24,570 --> 00:00:29,219 Sean Aylmer: enough? Is there enough focus on the decumulation stage? Adrian Stewart 8 00:00:29,219 --> 00:00:32,580 Sean Aylmer: is the CEO of Allianz Life Australia. Welcome to Fear & 9 00:00:32,670 --> 00:00:33,270 Sean Aylmer: Greed, Adrian. 10 00:00:33,960 --> 00:00:35,760 Adrian Stewart : Thank you Sean. Thank you for having me. 11 00:00:36,389 --> 00:00:39,540 Sean Aylmer: The hardest question first, Adrian. How much do people need 12 00:00:39,540 --> 00:00:40,229 Sean Aylmer: to retire on? 13 00:00:41,310 --> 00:00:44,460 Adrian Stewart : Well, that is a tough question, and of course it's 14 00:00:44,460 --> 00:00:49,530 Adrian Stewart : purely subjective to their needs and their lifestyle. And the 15 00:00:50,400 --> 00:00:54,000 Adrian Stewart : lifestyle that they're searching for in retirement is a direct 16 00:00:54,000 --> 00:00:58,170 Adrian Stewart : correlation to the lifestyle that they've experienced in the accumulation 17 00:00:58,170 --> 00:01:00,270 Adrian Stewart : phase. So it's a hard one to put a number 18 00:01:00,270 --> 00:01:01,170 Adrian Stewart : on to be honest. 19 00:01:01,680 --> 00:01:04,708 Sean Aylmer: Okay. I mean, I know that as for this association 20 00:01:04,709 --> 00:01:08,159 Sean Aylmer: of superannuation funds of Australia, say a couple will need 21 00:01:08,160 --> 00:01:14,490 Sean Aylmer: 640,000 in super savings at retirement, singles need 545,000. Is 22 00:01:14,490 --> 00:01:17,429 Sean Aylmer: there a problem when you get numbers like that that's 23 00:01:17,430 --> 00:01:20,339 Sean Aylmer: what we become a little bit too focused on, hitting 24 00:01:20,700 --> 00:01:23,580 Sean Aylmer: a target as opposed to thinking a little bit more 25 00:01:23,580 --> 00:01:25,499 Sean Aylmer: holistically about where we're going? 26 00:01:26,429 --> 00:01:29,339 Adrian Stewart : Yeah, I think so. Well first of all, I think 27 00:01:29,340 --> 00:01:34,110 Adrian Stewart : in the accumulation phase, it is important to focus on 28 00:01:34,740 --> 00:01:41,039 Adrian Stewart : securing your superannuation assets and accumulating assets to the best 29 00:01:41,039 --> 00:01:44,280 Adrian Stewart : of your ability so that when you do reach the 30 00:01:44,280 --> 00:01:48,510 Adrian Stewart : point of retirement, you have essentially as much money as 31 00:01:48,510 --> 00:01:54,540 Adrian Stewart : you possibly can save. But the needs in retirement are 32 00:01:54,540 --> 00:01:57,960 Adrian Stewart : different. So of course in accumulation, performance is the key 33 00:01:57,960 --> 00:02:02,250 Adrian Stewart : attribute that you're focused on. But once you reach the 34 00:02:02,309 --> 00:02:06,359 Adrian Stewart : point of retirement and you realize that the income that 35 00:02:06,360 --> 00:02:11,700 Adrian Stewart : you've derived from being an employee stops and you are 36 00:02:12,000 --> 00:02:17,459 Adrian Stewart : solely reliant on your accumulated assets, in addition to the 37 00:02:17,460 --> 00:02:20,548 Adrian Stewart : potential of some age pension or the full age pension, 38 00:02:21,179 --> 00:02:27,480 Adrian Stewart : the focus actually shifts from performance to certainty and income 39 00:02:27,480 --> 00:02:33,090 Adrian Stewart : certainty. The big behavioral finance issue at the point of 40 00:02:33,090 --> 00:02:36,690 Adrian Stewart : retirement, in retirement is longevity risk, and that is the 41 00:02:36,690 --> 00:02:39,839 Adrian Stewart : fear of running out of money. So it certainly shifts 42 00:02:39,839 --> 00:02:43,710 Adrian Stewart : from performance to certainty of income. 43 00:02:44,490 --> 00:02:47,130 Sean Aylmer: I mean, I want to get to the retirement income covenant and the 44 00:02:47,130 --> 00:02:51,600 Sean Aylmer: fact that the industry is thinking more about that decumulation stage. 45 00:02:52,050 --> 00:02:55,230 Sean Aylmer: But before we get there, most people don't run out 46 00:02:55,230 --> 00:02:57,419 Sean Aylmer: of money. In fact, I saw a stat recently that 47 00:02:57,419 --> 00:03:00,690 Sean Aylmer: said many people end up with the bulk of their 48 00:03:00,690 --> 00:03:04,709 Sean Aylmer: funds still invested when they die. 49 00:03:05,400 --> 00:03:09,930 Adrian Stewart : Yes, it's a good point. In fact, 85% of retirees 50 00:03:09,990 --> 00:03:14,579 Adrian Stewart : pass away with their super savings intact. And this is a 51 00:03:15,210 --> 00:03:20,760 Adrian Stewart : big dilemma. So what the retirement income covenant is seeking 52 00:03:20,760 --> 00:03:26,429 Adrian Stewart : to do is to create more solutions for retirees so 53 00:03:26,429 --> 00:03:29,849 Adrian Stewart : that when they do retire, they can invest in guaranteed 54 00:03:29,849 --> 00:03:35,549 Adrian Stewart : income products. So lifetime guaranteed income products, that provide the 55 00:03:35,549 --> 00:03:39,480 Adrian Stewart : certainty so that they can actually spend their savings with 56 00:03:39,480 --> 00:03:43,350 Adrian Stewart : confidence. And this goes to the point about longevity risk, 57 00:03:43,350 --> 00:03:46,230 Adrian Stewart : where this fear of running out of money, it actually 58 00:03:46,230 --> 00:03:51,990 Adrian Stewart : creates this behavior where retirees are living quite a frugal 59 00:03:51,990 --> 00:03:56,070 Adrian Stewart : retirement because they really don't have the certainty that their 60 00:03:56,070 --> 00:03:59,430 Adrian Stewart : savings will last for their lifetime. And so they tend 61 00:03:59,430 --> 00:04:04,139 Adrian Stewart : to spend less. Of course, the outcome of having better 62 00:04:04,139 --> 00:04:09,929 Adrian Stewart : innovation and more flexible retirement products is that from a 63 00:04:09,929 --> 00:04:15,180 Adrian Stewart : government perspective, this money is actually going into the economy 64 00:04:15,180 --> 00:04:20,490 Adrian Stewart : as retirees are spending with confidence. But more importantly, the 65 00:04:20,490 --> 00:04:25,349 Adrian Stewart : retirees actually have a better retirement because they're able to 66 00:04:26,130 --> 00:04:30,510 Adrian Stewart : live with a lot more certainty around their income being 67 00:04:30,510 --> 00:04:33,120 Adrian Stewart : there right through their life stage. 68 00:04:33,480 --> 00:04:35,640 Sean Aylmer: Stay with me, Adrian. We'll be back in a minute. 69 00:04:41,309 --> 00:04:45,030 Sean Aylmer: I'm speaking to Adrian Stewart, CEO of Allianz Life Australia. 70 00:04:46,020 --> 00:04:50,610 Sean Aylmer: Okay. So are there enough products available that are focused 71 00:04:50,610 --> 00:04:54,750 Sean Aylmer: on income and pay attention to that longevity risk? I 72 00:04:54,750 --> 00:04:58,680 Sean Aylmer: mean, I suppose annuities is one such product. Are there 73 00:04:58,920 --> 00:05:03,719 Sean Aylmer: enough products available in the market whereby if I'm 65, 74 00:05:03,719 --> 00:05:05,789 Sean Aylmer: I can buy a product knowing that whether I live 75 00:05:05,789 --> 00:05:08,550 Sean Aylmer: to 75 or 105, I'm going to be earning income? 76 00:05:09,630 --> 00:05:12,510 Adrian Stewart : Well, the short answer is no. And I think this 77 00:05:12,510 --> 00:05:15,479 Adrian Stewart : is the key reason that the Deputy Chair of APRA, 78 00:05:15,480 --> 00:05:19,889 Adrian Stewart : Helen Rowell in November last year sent a clear message 79 00:05:19,889 --> 00:05:22,889 Adrian Stewart : to the industry that they are looking for life companies 80 00:05:22,889 --> 00:05:27,060 Adrian Stewart : to innovate in the retirement income sector. If you think 81 00:05:27,060 --> 00:05:30,450 Adrian Stewart : about this industry, I mean the superannuation industry in Australia 82 00:05:30,450 --> 00:05:34,020 Adrian Stewart : is the envy of the world, and all of the 83 00:05:34,020 --> 00:05:37,109 Adrian Stewart : innovation in the last 30 years has been in the 84 00:05:37,110 --> 00:05:43,740 Adrian Stewart : accumulation phase. We have this incredibly deep and experienced investment 85 00:05:43,740 --> 00:05:48,779 Adrian Stewart : management capability here in Australia, both inside the superannuation funds 86 00:05:48,779 --> 00:05:54,089 Adrian Stewart : and external providing services to it. But there's been very 87 00:05:54,089 --> 00:06:00,119 Adrian Stewart : little innovation and retirement products developed in the decumulation phase, 88 00:06:00,119 --> 00:06:04,020 Adrian Stewart : and that's really the purpose of the retirement income covenant, 89 00:06:04,680 --> 00:06:08,040 Adrian Stewart : and also the call out to life companies who can 90 00:06:08,130 --> 00:06:12,960 Adrian Stewart : provide certainty in the form of guaranteed incomes, protection of 91 00:06:12,960 --> 00:06:18,419 Adrian Stewart : capital and income certainty. And to the point, right now 92 00:06:18,420 --> 00:06:23,609 Adrian Stewart : we have 700 Australians retiring every day and there's $ 55 93 00:06:23,610 --> 00:06:29,610 Adrian Stewart : billion moving across the line from accumulation to decumulation. That 94 00:06:29,610 --> 00:06:34,529 Adrian Stewart : goes to $ 200 billion a year in 20 years. So over the 95 00:06:34,529 --> 00:06:36,839 Adrian Stewart : next 20 years, we've got this weight of money that's 96 00:06:36,839 --> 00:06:40,260 Adrian Stewart : moving that needs really strong solutions. 97 00:06:40,800 --> 00:06:45,210 Sean Aylmer: I suppose the fact that the accumulation stage, while we 98 00:06:45,210 --> 00:06:48,809 Sean Aylmer: didn't have a lot of rich retirees, relatively few rich 99 00:06:48,809 --> 00:06:52,890 Sean Aylmer: retirees until now, because we didn't have our super system. 100 00:06:53,279 --> 00:06:57,600 Sean Aylmer: So presumably there wasn't a great incentive for financial service 101 00:06:57,600 --> 00:07:00,570 Sean Aylmer: firms to actually look after retirees. But I think what 102 00:07:00,570 --> 00:07:03,120 Sean Aylmer: you're saying is because that big shift in wealth, there's 103 00:07:03,120 --> 00:07:06,450 Sean Aylmer: also going to be a financial incentive for financial service 104 00:07:06,450 --> 00:07:07,799 Sean Aylmer: firms to do something about it. 105 00:07:08,790 --> 00:07:11,279 Adrian Stewart : Well, that's right. Well, I think there's a couple of 106 00:07:11,279 --> 00:07:14,010 Adrian Stewart : factors there. So one is that if you are facing 107 00:07:14,010 --> 00:07:17,760 Adrian Stewart : retirement, you might be looking at 30 or 40 years 108 00:07:17,850 --> 00:07:21,599 Adrian Stewart : in retirement because obviously we are living longer. And traditional 109 00:07:21,599 --> 00:07:26,580 Adrian Stewart : asset allocation and portfolio construction certainly plays a key role 110 00:07:26,790 --> 00:07:33,570 Adrian Stewart : in helping sustain those savings, but it doesn't provide the 111 00:07:33,570 --> 00:07:37,800 Adrian Stewart : full solution. And so this is where if you anchor 112 00:07:37,800 --> 00:07:42,030 Adrian Stewart : a portfolio with a guaranteed income for life, you provide 113 00:07:42,090 --> 00:07:45,690 Adrian Stewart : a level of certainty in that portfolio and the income, 114 00:07:45,690 --> 00:07:50,400 Adrian Stewart : again allowing for traditional portfolio construction to play its part. 115 00:07:51,570 --> 00:07:54,960 Sean Aylmer: You use the word anchor there but the thing I 116 00:07:54,960 --> 00:07:59,009 Sean Aylmer: suppose, income products don't pay or don't return as much. 117 00:07:59,670 --> 00:08:02,220 Sean Aylmer: But what you're saying, it's just part of the portfolio. 118 00:08:02,250 --> 00:08:04,469 Sean Aylmer: When you're saying anchor, you have an income product which 119 00:08:04,469 --> 00:08:07,140 Sean Aylmer: may not return as much, but that's not your only 120 00:08:07,140 --> 00:08:08,250 Sean Aylmer: investment. Is that what you mean? 121 00:08:08,490 --> 00:08:13,320 Adrian Stewart : That's correct, yes. I mean, these retirement strategies are part 122 00:08:13,320 --> 00:08:16,830 Adrian Stewart : of the solution, and if you are working with a 123 00:08:16,830 --> 00:08:20,639 Adrian Stewart : financial advisor or a super fund that's providing advice around 124 00:08:20,639 --> 00:08:25,830 Adrian Stewart : retirement, then they're taking a holistic approach to ensure that 125 00:08:25,830 --> 00:08:28,170 Adrian Stewart : you've got the right protection, but you also have the 126 00:08:28,170 --> 00:08:31,679 Adrian Stewart : right exposure to the market to ensure that you can 127 00:08:31,680 --> 00:08:33,630 Adrian Stewart : sustain those investments. 128 00:08:34,200 --> 00:08:38,670 Sean Aylmer: So the upshot of this then, Adrian, is that we'll 129 00:08:38,880 --> 00:08:41,518 Sean Aylmer: hopefully end up for people like me who in the 130 00:08:41,520 --> 00:08:47,010 Sean Aylmer: next 10 to 15 years will retire, will have greater opportunity or 131 00:08:47,010 --> 00:08:51,390 Sean Aylmer: more products really to choose from in that accumulation stage. 132 00:08:52,290 --> 00:08:54,870 Adrian Stewart : That's exactly right, yes. And we are seeing more and 133 00:08:54,870 --> 00:08:58,230 Adrian Stewart : more products come to the market. Now, the barrier to 134 00:08:58,230 --> 00:09:02,010 Adrian Stewart : entry is high. So on the accumulation side, and we 135 00:09:02,010 --> 00:09:05,608 Adrian Stewart : talked about the investment management capabilities that we have, there 136 00:09:05,610 --> 00:09:09,780 Adrian Stewart : are hundreds of different investment managers to choose from. On 137 00:09:09,780 --> 00:09:14,790 Adrian Stewart : the decumulation side because you're offering a guaranteed income, there's real 138 00:09:14,790 --> 00:09:18,330 Adrian Stewart : capital and balance sheet that supports that from a life 139 00:09:18,360 --> 00:09:22,679 Adrian Stewart : company. As soon as you mention the word guarantee, you 140 00:09:22,679 --> 00:09:24,690 Adrian Stewart : actually have to be able to back that up and 141 00:09:24,690 --> 00:09:27,389 Adrian Stewart : deliver on that promise that you're making. And so the 142 00:09:27,389 --> 00:09:30,240 Adrian Stewart : barrier to entry is very high. You have to have 143 00:09:30,240 --> 00:09:34,379 Adrian Stewart : capital, you have to have balance sheet, you have to have global experience and 144 00:09:34,379 --> 00:09:39,750 Adrian Stewart : capability. And so we think that you will see a 145 00:09:39,750 --> 00:09:43,860 Adrian Stewart : handful of life companies into this market, but they will 146 00:09:43,860 --> 00:09:47,519 Adrian Stewart : develop a suite of products that provide lots of choice 147 00:09:47,520 --> 00:09:49,920 Adrian Stewart : for financial advisors and retirees. 148 00:09:50,520 --> 00:09:53,338 Sean Aylmer: Fantastic. One final thing. I don't ever get an inheritance 149 00:09:53,340 --> 00:09:55,860 Sean Aylmer: for my parents, which I didn't expect. And I think my 150 00:09:55,860 --> 00:09:59,280 Sean Aylmer: kids are expecting one, but I don't see the logic 151 00:10:00,240 --> 00:10:03,389 Sean Aylmer: in actually having any money when I die, particularly given 152 00:10:03,389 --> 00:10:05,370 Sean Aylmer: that my kids will be in a super system their 153 00:10:05,370 --> 00:10:06,450 Sean Aylmer: whole working lives. 154 00:10:07,710 --> 00:10:14,160 Adrian Stewart : Yes, it's a good point. However, there obviously is bequeathing 155 00:10:14,370 --> 00:10:20,939 Adrian Stewart : some savings to your children is an important part of retiree's 156 00:10:21,030 --> 00:10:24,149 Adrian Stewart : ethos. And I think there is an element of leaving 157 00:10:24,150 --> 00:10:28,649 Adrian Stewart : something for your family members. But a good financial planner 158 00:10:29,250 --> 00:10:32,580 Adrian Stewart : in planning for your retirement will factor that in, but 159 00:10:32,670 --> 00:10:34,770 Adrian Stewart : at the same time, give you that confidence to spend 160 00:10:34,770 --> 00:10:38,640 Adrian Stewart : so you can actually achieve both. So instead of leaving 161 00:10:38,670 --> 00:10:41,969 Adrian Stewart : 85% of your savings, you might leave 50, but you've 162 00:10:41,969 --> 00:10:43,319 Adrian Stewart : enjoyed a better retirement. 163 00:10:43,679 --> 00:10:45,360 Sean Aylmer: I reckon my kids will be lucky to get 50, 164 00:10:45,360 --> 00:10:48,240 Sean Aylmer: Adrian. Thank you for talking to Fear & Greed. 165 00:10:48,630 --> 00:10:50,370 Adrian Stewart : Pleasure, Sean. Thank you for having me. 166 00:10:50,940 --> 00:10:55,110 Sean Aylmer: That was Adrian Stewart, CEO of Allianz Life Australia. This 167 00:10:55,110 --> 00:10:57,988 Sean Aylmer: is the Fear & Greed Daily Interview. Remember, this information is 168 00:10:57,990 --> 00:11:00,750 Sean Aylmer: general in nature and you should seek professional advice before 169 00:11:00,750 --> 00:11:03,630 Sean Aylmer: making any investment decisions. Join us every morning for the 170 00:11:03,630 --> 00:11:06,900 Sean Aylmer: full episode of Fear & Greed, Australia's most popular business podcast. 171 00:11:07,139 --> 00:11:08,910 Sean Aylmer: I'm Sean Aylmer. Enjoy your day.