Outgoing Challenger chief executive Brian Benari said empowering Australians to provide for their own retirement is “essential from a fiscal perspective” as the industry awaits direction on retirement income product design.
With the government shelling out $50 billion every year on support for ageing Australians, Benari said that, although the number of Australians relying solely on the age pension was decreasing, the number of people accessing it was on the rise.
“It’s clear that getting the superannuation system right – from start to finish – is essential not only for retirees,” he said at the $7 billion retirement income specialist’s annual meeting on Friday.
Benari made these comments after it was announced he would retire as Challenger’s managing director and chief executive, with the company’s head of distribution, product and marketing, Richard Howes, a 15-year veteran of Challenger, taking the reins.
Having also spent 15 years at the company, Benari will step down from the Challenger board in January 2019 and will work with Howes over six months to manage the transition.
Benari took the opportunity to point out the business opportunities that abound for annuity specialists such as Challenger.
“Today, more than half of retirees provide for themselves, either fully or in part,” he said. “This means more and more of them are looking for reliable income streams to ensure their savings last for life.”
Retirement assets make up 30 per cent of the $2.7 trillion superannuation sector but industry experts say this will probably increase to 40 per cent in 15 years. A key recommendation of the David Murray-led Financial System Inquiry was that all funds must offer a comprehensive income product for retirement (CIPR), and in May, the federal government introduced a “retirement income covenant” that would, for the first time, require trustees to help their members meet their retirement income objectives.
It is forecast that only 30 per cent of Australians will rely solely on the age pension by 2025.
This ballooning opportunity has captured the attention of fund manager heavyweights Aberdeen Standard Investments and Magellan Financial Group. Also, in May, insurance giant Allianz and global fixed-income manager PIMCO announced they would set up a new retirement income products business.
That same month, the government released a discussion paper for consultation, which is part of stage one of the Retirement Income Framework and proposes to legislate the covenant by July 1, 2019, but to delay commencement until July 1, 2020.
Benari said more and more industry participants were recommending an allocation of 20-25 per cent of clients’ assets in longevity products during the retirement phase.
“The Retirement Income Framework being developed by the government is regulatory recognition that it’s time to enhance the super system to meet the needs of retirees for secure and stable income that lasts for life,” he asserted.
Since Benari’s appointment at Challenger in 2003, the company’s market cap has tripled and its assets under management have almost tripled.
“This has delivered a total shareholder return over this time of 209 per cent, compared with the ASX 200 result of 95 per cent,” Challenger chair Peter Polson said at the annual meeting on Friday.