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Transcript of U.K. Australia U.S. - Health | Hewitt Retirement Investment 3 U.S. Guest Speaker Kevin Hanney...
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