Aon HewittRetirement & Investment

Session #116 May 2016 San Francisco 19:00 / New York 22:0017 May 2016 London 03:00 / Beijing 10:00 / Sydney 12:00

Session #2San Francisco 0:30 / New York 03:30 / London 08:30 / Beijing 15:30 / Sydney 17:30

Session #3May 17, 2016 San Francisco 12:00PM (Noon) / New York 3:00PM / London 8:00PMMay 18, 2016 Beijing 3:00AM / Sydney 5:00AM

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Todays speakers

How to ask questions during the webinar

ChairAlison Borland

alison.borland@aonhewitt.com

U.K. Kevin Wesbroom

kevin.wesbroom@aonhewitt.com

AustraliaJenny Dean

jenny.dean@aonhewitt.com

U.S.Steve Shepherd

steve.shepherd@aonhewitt.com

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U.S. Guest SpeakerKevin Hanney

United Technologies Corporation

Guest speakers

Australia Guest SpeakerIan Lorimer

UniSuper

U.K. Guest SpeakerMark Fawcett

NEST

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Agenda

Decumulation Global Overview Market factors making Decumulation more challenging A range of options and approaches across the globe

Decumulation in the U.K. A changing landscape Integrated savings solutions

Decumulation in Australia Welcome to CIPRs The role of advice

Decumulation in the U.S. Lower savings increase the challenge Employees and employers faced with a myriad of options

Guest Speakers Kevin Hanney, United Technologies Corporation Ian Lorimer, UniSuper Mark Fawcett, NEST

Key learnings for global plan sponsorsQ&A with guest speakers

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ChairAlison Borlandalison.borland@aonhewitt.com

Decumulation A Global Overview

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Past and recent market factors have presented increased challenges

Bond yields have been falling for more than 20 years.

The amount outstanding of bonds trading with negative yields reached $6.9 Trillion as of April 2016.

Source: ECB, J.P. Morgan.

Source: Bloomberg, Datastream

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future returns and longer lives are making the problem worse.

Source: McKinsey Global Institute: Diminishing returns: Why Investors may need to lower their expectations

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1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Male life expectancy at age 65 by country, 1960-2050

Australia Canada France

Japan UK US

Source: Historical data on life expectancy OECD Health database 1960-95. Recent data and projections of life expectancy Future based on the United Nations Population Division database, World Population Prospects The 2008 Revision.

Compared to the last 30 years, real returns in global equities and bonds over the next 20 years are predicted to be materially lower

while life expectancies in many countries continues to climb, creating the need for pension dollars to stretch even further.

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The perfect decumulation solution?

What features would a retirement solution need to have?

Consistent pre-and post-retirement investment

strategy

Economies of scale

Clear, engaging and flexible

Encourages regular member

engagement

Available to all fund sizes

Easy to implement and

monitor

Investments

Range of investment options and

target outcomes

Costs

Institutional not retail costs

Member Experience

Range of tools and support

Administration

Seamless transition from accumulation

Coverage

Suitable for a range of legacy situations and requirements

Implementation

Little/no additional cost

Income

Some level of guaranteed or certain income

Buckets for growth and spending

Inflation protection

Lifetime advice available

Multi-channel communicationTax efficient

Flexibility in times of need

Integrated with other savings

and state benefits

Integrated with long term care,

disability benefits, aged

care

Source: Aon DC Global Community

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Retirement expectations are changing what do members want?

How members want to spend their retirement income, compared to how they need to spend their retirement income

Source: UK Aon Hewitt survey with Cass Business School

Will take money as soon as possible

Early spender10%

Continue to invest and dip in as

and when

Flexibility foremost15%

Continue to invest to generate

stable income

Steady Spender35%

Set aside for long-term

care or bequest

Residual Required5%

Secure guaranteed income via an annuity

Certainty-Seeker35%

Years in retirement

Expe

ctat

ion

and

inco

me

sour

ces

Travel

Repay mortgage

State Pension

Base Pension

Tax

free

cas

h

Part time work

Help children / grandchildren

Care costs

Travel

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Each country is coming up with different solutions schemes

Country Lifetime Annuities Income Drawdown Lump Sums

Australia Allowed, but very little demand Allowed. Main options are account-based income streams Allowed and relatively common

New Zealand Allowed, but there are no annuity providers in New Zealand Allowed Allowed and relatively common

U.S. Allowed, but demand is weak. 9% of retirees have significant annuity income Allowed Allowed

Canada Allowed, with significant demand Allowed, although with restrictionsin some cases Limited for DC pension schemes

IrelandRequired, unless income can be shown to the above threshold to qualify for income drawdown

Allowed given sufficient incomeRestricted to 25% or 1.5 timesincome as tax-free lump sum (taken by most people)

Switzerland Default option, and subsidised Not allowed Allowed, but discouraged

Denmark Unlimited deferred annuities Restricted amounts can be allocated to term annuities Allowed

Netherlands Mandatory Not Allowed Not Allowed

Singapore Mandatory Not Allowed Not Allowed

Chile Default Option Restricted to programmed withdrawals Not Allowed

U.K. Formerly primary option. AllowedCurrently restricted to capped drawdown and flexible drawdown products.

25% tax-free, taken by most people. Expected policy is for whole pot to be available, taxed at marginal income tax rates after 25% tax-free allowance

Source: UK Financial Conduct Authority: The Retirement Income market comparative global research

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U.K.Kevin Wesbroomkevin.wesbroom@aonhewitt.com

Decumulation in the U.K.Navigating a shifting landscape

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George Osborne pensions surprise merchant

Base Annuity Income

Drawdown IncomeLater Life (Deferred)

Annuity

Drawdown Income

Combined drawdown and annuity strategies may offer optimal at retirement options

100 years of compulsory annuity purchase blown away at a stroke

Let them buy Lamborghinis Give them 40 minutes of guidance

(not advice) And now (2016) 500 of tax free

pensions advice

Source: Evalue

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At retirement options what flexibilities are schemes offering?

More cash (UFPLS)? Accessing drawdown solution?

Source: Aon Hewitt UK DC Survey 2015

A majority of schemes are considering or offering extra cash flexibilities to their members

A majority of schemes are considering or offering drawdown flexibilities to their members but not in their own scheme!

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Decumulation driven changes to investment strategy

Developing themes in DC investment product development

To & Through strategy

ETFs to provide

exposure to more niche strategies

Drawdown focused funds

New style annuity

products

Low cost multi-asset

funds

Volatility controlled

funds may have a role

More diversification

within a passive play

Greater sophistication in fixed income

investing

Source: Aon Hewitt

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Post budget(s) thinking integrated savings solutions

Share save6,000 pa

Your savings allowance

General savings5,000 pa

Registered pension10,000 pa

Share incentive plan

8,000 pa

Corporate ISA20,000 pa

LifetimeISA

5,000 pa

For illustrative purposes only

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Decumulation in AustraliaAiming for more comprehensive solutions

AustraliaJenny Deanjenny.dean@aonhewitt.com

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Snapshot of Australia

Total assets as at 31 Dec 2015AUD2 trillion

1 ASFA Retirement Standard December 20152 Australian Bureau of Statistics 2013-2014

Comfortable retirement income1

Single AUD43K paCouple AUD59K pa

Average balance of ages 60-642

AUD293K AUD138K

Recommended Target Balance1

~AUD545K single~AUD640K couple

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Welcome to Comprehensive Income Products