The US and Australian retirement experience is discussed by Jasmine Jirele, President and CEO, Allianz Life Insurance Company of North America and Adrian Stewart, Managing Director & CEO, Allianz Australia Life Insurance Limited and is hosted by Simon Aboud, Chief Product & Marketing Officer, Allianz Retire+.
Click on the video player below to access the interview.
Australians are living longer, healthier lives, but this comes at a cost – the need to fund 30+ years in retirement. Retirees need an income stream that will go the distance, irrespective of volatility and uncertainty in financial markets.
Volatile markets have reinforced the need for retirement planning to factor in the unexpected. In the US, this has resulted in a trend toward guaranteed retirement income; consumers get comfort from the certainty that their basic retirement income needs will be met.
“Retirees are looking for more certainty, and they’re looking to make sure that there’s some way that their basic needs and expenses can be met in a really volatile environment” – Jasmine Jirele.
In the Australian market, innovation over the past 30 years has focused on the accumulation phase. However, there’s currently $55 billion a year crossing from accumulation to decumulation, an amount expected to increase to $200 billion a year over the next 10-15 years.
Australians are looking for a new vision in decumulation product design; there’s a regulatory tailwind for innovation and market demand is strong for retirement solutions that provide both guaranteed income and the opportunity to generate alpha.
“The US experience is hugely valuable for the Australian marketplace and we’re in a position to leverage that” – Adrian Stewart.
We are in a unique position of being able to draw on years of product innovation in the US and other markets, to draw on the experience and learning from global peers, to deliver tried and tested solutions to add real value to Australian retirees.
Simon Aboud: Hi, I’m Simon Aboud, Chief Product and Marketing Officer for Allianz Retire+, and today I’m joined by Jasmine Jirele and Adrian Stewart. Today, what we want to talk about one of the large demographic shifts that we’re seeing globally, which is people living longer. Consequently, people then need to fund retirement for a much more extended period. For many people, that means 30, 35, 40 years of funding retirement.
What we wanted to do today was spend a bit of time learning from our experience in the United States, and so Jasmine Jirele has joined us.
Jasmine, in terms of your experience and your observations in the market, what changes are you seeing to the way that people are planning for retirement and thinking about retirement solutions given this challenge of funding their income for a much more extended period?
Jasmine Jirele: I’d say we’ve really seen a lot of change on this topic over the last 5 or 10 years. In the US, as you mentioned, lifespans are increasing, people are living longer. I think, with recent financial markets and some of the volatility we’ve experienced, people realise that they can’t necessarily plan for retirement in the way that they used to. In other words, they need to really plan for the unexpected. We’re seeing more of a trend for customers looking to utilise some sort of guaranteed retirement income as a part of their overall financial planning solution. The way that they’re thinking about it, the way advisors are talking about it, is utilising this tool to really define an outcome for a level of income that you really need to live comfortably in retirement. Then that gives you the freedom to also optimise the other parts of your portfolio with other types of investment strategies or retirement savings tools. These products are rising in popularity, and I think people are getting a lot of comfort from the certainty of knowing that their basic retirement income needs are covered.
Simon Aboud: Great. In terms of the way you’ve just described the retirement products they’re being used, is it fair to say that they’re being used as an anchor within the portfolio or a foundation within the portfolio?
Jasmine Jirele: I think that’s absolutely right. It’s really about figuring out the various sources of retirement income that people will draw upon. In some cases, there are some social benefits. There might be benefits coming from an employer, but most Americans really need to plan to supplement at least 50% of their basic retirement income needs with some sort of other source. That’s how the products are being used. Once they’ve covered that portion of their needs, it allows for more flexibility with what they do with the balance of their portfolio.
Simon Aboud: Adrian, in Australia, we’ve seen a massive amount of innovation in the accumulation phase of retirement savings, if you like, and a lot less in the retirement income phase. When we listen to what’s occurring in the United States, what are your views around how that might be incorporated for the benefit of Australians?
Adrian Stewart: Sure, yes. We are seeing the same trend here in Australia, as a developed market just like the US. We have this ageing population that’s hurtling towards retirement. If you look at the statistics, there’s currently $55 billion a year that’s crossing the line from accumulation to decumulation that’s growing to $200 billion a year over the next 10 to 15 years. This weight of money is moving. As a result of that, retirees are seeking certainty in retirement. They’re looking for innovation. They’re looking for retirement solutions that can provide a guarantee, to your point earlier, that anchors the portfolio, which allows them to, as they’re doing in the US, to think about how they might seek more alpha in the rest of the portfolio. The final point, I think, to make is that the government is hypersensitive to this issue. We’ve just seen the retirement income covenant take effect from 1 July last year. So, there’s a regulatory tailwind, treasury government, APRA are calling for innovation, and the market demand is there.
Simon Aboud: Jasmine, you’ve been on the journey for a number of years in terms of implementing these guaranteed income for life solutions into client portfolios. It would be interesting to understand a little bit of what that journey’s been like. In Australia, we’re at a point where it’s fair to say, I think they’re quite new, and the innovation is about to come to market for the first time. But you’ve had the benefit of being through a number of years of introducing these products to the market, the take-up for advisor. It’d be good if you just shared some of the lessons around that journey, from when they were first introduced to where we are today.
Jasmine Jirele: Sure. I think if I go back to when the market got started for these types of products, it really came out of some changes that were happening within the employer landscape where defined benefit plans had been traditionally offered by most employers and, as a general rule, could provide enough basic retirement income to meet most retirees needs. Those plans began to get phased out roughly, call it 25 or so years ago. With that came the rise of defined contribution plans. But particularly in the US, a lot of Americans are just not good at saving unless it’s compulsory. A retirement crisis began to loom pretty soon after some of these changes took place. Retirees were faced with this conundrum of not having enough retirement income from some of the employer or government sources and really the need to figure out how to generate some guarantee as they got to retirement.
From that, really, these products became more mainstream, if you will, particularly in the retail and wealth segments. Over time, the products have evolved a lot. At one point, I would say they were simple guarantees, with not necessarily a lot of choice. As they’ve matured over time, there’s a wide range of different options available. Some with more or less downside protection, more or less market exposure / participation, and a number of different features to try to help essentially optimise the performance of the product. As the market’s matured, I think these products have continued to deliver more value for consumers, and I think that has a bit of a flywheel effect in terms of then creating more demand.
Simon Aboud: Adrian, there are different market dynamics. Obviously, in the Australian market, we’ve had things like the retirement income covenant and others, I guess, what might be considered catalysts that are currently in play. How do you see, I guess, the rollout, the implementation of this innovation, the next generation of retirement products? How do you see that over the next, say, 3, 4, 5, 6 years playing out?
Adrian Stewart: As you indicated earlier that if you think about the Australian marketplace, the last 30 years, all the innovation has been in the accumulation phase. As superannuation’s been growing and the population’s been ageing, we are now at the point where we can leverage the experience that we have globally. Jasmines just talked about the last 25 years of product innovation in the US, and we can really tune into that and bring solutions from other markets that have been tried and tested and successful to deliver these solutions to Australians as they are reaching retirement. I think that experience is hugely valuable for the Australian marketplace, and we’re in a position where we can leverage that.
Simon Aboud: Jasmine, in terms of you, as you’ve mentioned, the products have been through, I guess, a cycle of maturing, adding on features, growth in terms of where we are today and looking at how products might continue to develop in a more, I guess, experienced market with these types of products. What are you seeing in the US over the next few years, maybe from a product design / solution perspective?
Jasmine Jirele: I think a couple of things. First, I think the products are due to some regulatory changes, going to become more prevalent in employer-sponsored plans. Similar to how target date funds became popular many years ago in those DC plans, we’re starting to see a trend of combining some sort of lifetime income product along with a managed account to help consumers really balance their risk profile and ultimately transition to more of a safety feature with guaranteed retirement income as they get closer to retirement. That’s going to be helpful in particularly closing a gap with middle-market Americans who, in many cases, don’t have as sophisticated of a plan, or maybe they’re not working with a wealth or retail advisor.
I think that’s going to help a large portion of the population that’s been underserved and is a good development. On the retail side, there’s a trend towards more personalization, more choice, and I think really being able to have a suite of products that are flexible and can pivot to different market environments. The last 3, 4, 5 years have demonstrated one thing, and that’s that retirement is incredibly unpredictable. The effects of inflation, the effects of all the market volatility have been dramatic. So, I think those events have really opened retirees’ eyes to the fact that they need to think differently about flexible features to manage those risks.
Simon Aboud: Actually, that was one thing I was going to ask you about. Obviously, we’ve seen over the last couple of years more volatility, but also inflation is a big, big topic. Have you seen any changes in the take-up of the products, the use of the products, the way the products were being used in the US over the last couple of years as a consequence of the changed environment?
Jasmine Jirele: I would say, I think just in aggregate, again, people are looking for more certainty, and they’re looking to make sure that there’s some way that their basic needs and expenses can be met in a volatile environment. The income features on the products are becoming more popular. Many retirees in the US use retirement income solutions, also for accumulation. They’re using them to prepare for eventual decumulation or retirement income. But now we’re seeing more of a push to begin taking income sooner and a much more popularity of features in the products that offer some sort of guaranteed income that’s linked to an element of market performance or another aspect of the plan.
Simon Aboud: Adrian, a couple of the points that Jasmine’s touched on there is the role of these guaranteed lifetime income products in a portfolio in relation to other assets and other sources of income that clients might have. From an Australian perspective, how do you see these products being incorporated into a portfolio? Obviously, account-based pensions have traditionally been a mainstay. Would you mind just telling a little bit about how you see them fitting within a portfolio and being implemented?
Adrian Stewart: Sure. I think that’s a critical point because a retirement solution that a retiree might be recommended by their advisor, or they might buy directly is only ever going to be one component of their overall portfolio. So, it’s important that, first, retirees get advice to really ensure that they’ve got the right structure in retirement, and they’ve got the right asset allocation. That’s critical. But within that, having a retirement solution that anchors the portfolio that might be a guaranteed income solution with these features that Jasmine’s referred to where you can have market-linked exposure until you decide to turn the income on, they’re new features to the Australian marketplace, which obviously we are very excited about bringing to the market, but more importantly, are really relevant to the retiree because it gives them more control, it allows them to work with a financial planner to determine the level of income that they’re looking to turn on, and also when they turn that on.
Getting that mix right with an account-based pension is important. So, one of the things that we are doing is we’ve invested heavily in technology. We are working very closely with the platforms, both with super admin platforms and more the wealth management platforms. So, we are integrating the new retirement income solution, which we’ve called AGILE, which is the Allianz Guaranteed Income for Life solution. So that will be integrated into an account-based pension or a super account on the platform. It’s inside the ecosystem for the advisor and for the retiree.
Simon Aboud: Both of you are in very senior roles. You’ve chosen to participate in this part of the industry. If you think about where we are today, what excites you about where we are potentially from a US perspective? A similar question for you Adrian around Australia, where do you see globally, potentially where we are with retirement? What excites you about the next phase of retirement income?
Jasmine Jirele: That’s a great question, and I’ll call out two things. First, I think we are starting to see more of a convergence between asset management and the use of retirement products. And that’s going to generate better outcomes for clients. It’s going to provide for more innovative solutions that carriers can provide. I think we’re really sitting on the edge of a next wave of innovation that’s going to allow us to continue to make these products better for what’s ahead in the next 20 or 30 years of probably a lot of volatility and uncertainty in the market.
The other thing is, I think we’re reaching clients who have a real need, and we’re providing real value in solving a big part of a social crisis. In some respects, I think you can liken, at least in the US, the retirement financial security challenges to what PNC companies are facing with climate change. I think we’re playing a really important role in society by helping to solve this important problem and provide happier, healthier, more successful financial futures for Americans. I love that mission, and I love that we’re making a difference.
Simon Aboud: Adrian, from an Australian perspective, same question. What’s exciting you about where we are today from a retirement income?
Adrian Stewart: Very similar to Jasmine. I feel that as an industry, we have this moral imperative to innovate in this space. The financial services industry has really been a beneficiary of the superannuation regime for the last 30 years, and it’s hard to innovate in retirement income because as soon as you make a promise to deliver an income over 20, 30, 40 years, you must have the infrastructure to support that promise. In other words, you need to be a life company. You need to have capital. You need to have the retirement expertise. You need to be able to bring innovative solutions that are relevant.
That’s hard to do. For me, the driver is, I think, that we as an industry have been a beneficiary of this wonderful superannuation regime, which is the envy of the world, but we need to work harder to deliver these solutions to Australians because it is a social crisis. It’s this great dilemma, and it’s very much, it’s not really identified for Australians until they start thinking about retirement. Then this fear of running out of money becomes real. I feel like we have this moral imperative to solve for this.
Simon Aboud: Certainly, I think there’s opportunities and challenges associated with the retirement income phase, but I think, listening to both of you, there’s a lot of momentum in this part of the market, whether that’s momentum around the demographic shift, momentum around product innovation, solution innovation, and innovation around providing the way that we help advisors to talk to clients about these products. Thank you very much for your time today, and we look forward to the next stage in terms of retirement income solutions.
Jasmine Jirele: Thank you.
Adrian Stewart: Thank you.