Insuring against longevity risk - Building a retirement income offering together

ARTICLE

26 February 2024

3 mins read

The challenge we face

The number of Australians aged 70 years or older is expected to rise from 3 million in 2021 to 3.8 million in 2028. This is due to a combination of factors, including an ageing population and changes in mortality rates. These factors, combined with a growing awareness of longevity risk (the risk of outliving retirement savings), is placing an increased focus on longer term planning for retirement. Unsurprisingly, this is driving a growing demand for retirement products that support the superannuation system. Life insurers are best placed to help co-design these products to address these emerging concerns.

The industry viewpoint

APRA introduced the Retirement Income Covenant (RIC) from 1 July 2022 that requires all superannuation funds to formulate a retirement income strategy and to publish this strategy on their website. APRA has since been vocal about the lack of meaningful progress from superannuation funds in developing default retirement income products aligned with their published strategies. The thematic review of the RIC implementation by APRA and ASIC showed the need for more focus on:

understanding member needs
designing ‘fit for purpose’ assistance and tracking effectiveness, and
overseeing strategy implementation.

AIA Australia (AIAA) believes the development of retirement income products including an element of longevity risk is inevitable, for example lifetime annuities and deferred lifetime annuities. These products may replace or supplement the current allocated pension products offered by most funds.

How we can offer support

AIAA is a leading provider of insurance products in Australia, with substantial market share in all distribution channels, particularly Group Insurance where we have numerous mandates with medium and large superannuation funds.

We expect to work closely with our superannuation fund partners to help co-design new retirement products, utilising the combined expertise and capabilities of AIAA and the reinsurance market. We appreciate that the development of retirement income products in Australia is still in its infancy, and that the demographics and income needs of member cohorts between funds may require different product features. Further, the marketing strategy of each superannuation fund is likely to vary.

It is important to have the relevant “building blocks” at our disposal so we can readily assist our superannuation fund partners to co-design tailored retirement income solutions to help satisfy the fund’s obligations under the Retirement Income Covenant.

Better understand members' needs and wants

Member research
Product solutions may range from those deemed to fit the needs of most Australians (e.g., immediate and deferred annuities) while allowing trustees the ability to customise solutions for their membership base and risk appetite preferences
Sourcing global best practice to allow our Group partners to develope a retirement solution in Q2 2024

Provide advice, guidance, and tools to help empower members to make decisions

Product communications
Member education

Develop product solution options

AIAA will be partnering with a proven leader in the retirement space to provide a series of 'ready to go' product solutions to assist with managing the variability in longevity risk
The solution will ensure the seamless integration with trustees' existing infrastructure to reuce trustee effort ensuring the smooth delivery of products to members

AIAA’s approach is to co-design ‘fit for purpose’ longevity risk solutions with our super fund partners to integrate into the trustee’s retirement income product offerings.