John Anderson
Alexander Forbes Financial Services
Head of Institutional Strategy
Next Generation Benefit Design
The only constant is CHANGE!
The only constant is CHANGE...
OUR ENVIRONMENT AT HOME & ABROADHAS CHANGEd!!!
Legislative changes Abound!
The New Breed of Workers
Increased Longevity
Informed Consumers
Social Connectivity & flow of informationIncreased appetite for Choice & Flexibility
We need to understand the trends impacting us...
The numbers paint a SCARY picture!
>70%
The number of funds which had the same contribution rate structure over last 10 yrs.
75%
Percentage of people who selected Living Annuities at retirement.
43%
Percentage of retirees with living annuity drawdown rates of 15% or more.
NRRs over time...Age: 2001 Projected NRR: 2001 Projected NRR: 2011
30 year old 75% ???
40 year old 75% ???
50 year old 75% ???
Return
30 year old 14.1% p.a.(8.1% real)
40 year old 14.1% p.a.(8.1% real)
50 year old 12.8% p.a.(6.4% real)
• Invested in typical life-stage model
NRRs over time...Age: 2001 Projected NRR: 2001 Projected NRR: 2011
30 year old 75% 63%
40 year old 75% 69%
50 year old 75% 67%
Return Salary increase
30 year old 14.1% p.a.(8.1% real)
11.1% p.a.(5.1% real)
40 year old 14.1% p.a.(8.1% real)
9.0% p.a.(3.1% real)
50 year old 12.8% p.a.(6.4% real)
8.5% p.a.(2.4% real)
• Invested in typical life-stage model
• Cost of retiring increased: Increased longevity and falling interest rates• Assumes preservation• Contributions unchanged as % of salary
Do you have enough death cover?
94%The proportion of funds that kept their benefit structure fixed over the last 10 years.
~ Alexander Forbes Member Watch, 2011
Are Trustees concentrating on the right stuff?
Source: Alexander Forbes Hot Topics, November 2010, Audience Participation Results
Are Trustees concentrating on the right stuff?
Source: Alexander Forbes Hot Topics, November 2010, Audience Participation Results
We know what the issues are:
Behavioural tendencies!Fixed benefit structures!Not focusing on outcomes!
Our take on the other side of the door...
A more Engaged Employer is needed...
Ensuring appropriate benefit structures Educating employees Assessing benefit structures
Consideration of the Lifecycle...
Understanding the real asset allocation problem
Asset Wealth Human Capital Wealth
Age 0 18 25 35 45 55 65 85
This is the problem that a retirement fund is designed to address.
Is an auto-solution the answer?
A Fixed Benefits Design affects members’ lives
Age
25 30 35 40 45 50 55 60
120%
100%
80%
60%
40%
20%
0%
% o
f ne
ed c
over
ed
Mar
riage
1st c
hild
2nd c
hild
3rd c
hild
Yie
lds
fall
Div
orc
e
Re-
mar
ry
Expected retirement benefit Disability protectionDeath benefit
A Proposed Framework...Benefit Structures with Full Flexibility
Increasing Risk of Behavioural Factors Influencing Choices
Fixed Benefit Structures
Increasing Risk of Individual Shortfall/Excess
Appropriate solution lies
between the 2 extremes if you
have appropriate support
mechanisms
Appropriate solution lies
between the 2 extremes if you
have appropriate support
mechanisms
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