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Annuities – What are they and why use them?. Thornton Group Barossa Valley Money Show October 28 th , 2009. Darren Abbott Challenger. Agenda. Overview The shortcomings of current portfolio construction techniques Annuities – a return certain, term certain, zero volatility asset class.

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Annuities – What are they and why use them?

Thornton Group Barossa Valley Money Show

October 28th, 2009

Darren Abbott

Challenger


Agenda l.jpg
Agenda

  • Overview

  • The shortcomings of current portfolio construction techniques

  • Annuities – a return certain, term certain, zero volatility asset class


Overview l.jpg
Overview

  • The GFC has resulted in large amounts of wealth disappearing

  • Most impacted are the baby boomers who are approaching retirement or just retired and are at the point of maximum financial wealth

  • Many now face under funding problems. Wealth projected to last 20-25 years will now last much less

  • Traditional portfolio construction has failed these investors


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Investment objectives – pre versus post retirement

Income versus Growth

  • Accumulators aim to maximise wealth through capital growth while retirees have a preference for income to meet living expenses

    Financial Capital versus Human Capital

  • Accumulators have the ability to control the date of retirement and hence continue to add to their capital base, while retirees don’t have that ability after retirement




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a) Investment objectives – pre versus post retirement

Case study – sensitivity to market returns




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Annuities volatility asset class

Characteristics

  • Return certain

  • Term certain

  • Exhibit zero volatility

    Assessment of Annuity Risk

  • No APRA regulated life company has defaulted since the current legislation was introduced in 1994


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Product features volatility asset class


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Residual Capital Value Plus (RCV Plus) volatility asset class

Select an amount between 10% and 100% of the amount invested that will available at the end of the term

Diagrams are indicative only, and assume payments are fixed (that is, not indexed to inflation or increased by a set percentage each year.


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Residual Capital Value of 0% (RCV0) volatility asset class

Regular payments are made up of a combination of interest plus a percentage of the capital originally invested. There is no capital left at the end of the term.

Diagrams are indicative only, and assume payments are fixed (that is, not indexed to inflation or increased by a set percentage each year.


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Challenger Life volatility asset classOverview

Challenger Life Company Limited (APRA regulated Life Company)

Manages a portfolio of assets delivering long term guaranteed income streams to annuitants and predictable over-the-cycle returns to shareholders

  • A$6.1 billion of assets under management

  • Market leader in annuities with more than 60,000 policy holders

  • Investment strategy focussed on assets generating predictable income streams

  • Clear focus on risk and capital management


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Asset allocation volatility asset class

As at 31 December 2008


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Latest Product Development volatility asset class

  • Challenger have created a platform-ready investment that provides guaranteed income and capital at maturity through its underlying annuities issued by Challenger Life.

  • First to offer a unitised annuity investment option in the market and launching exclusively with BT Wrap on 19th October 2009

  • Key features of the product include;

    • Regular income (set monthly distribution amount)

    • Return of capital at maturity ($1 per unit)

    • Income and capital guaranteed in the underlying annuities by Challenger Life

    • Set 30 June maturity dates that approximate 3 year, 5 year & 7 year terms

    • Competitive rates

    • Zero management fee

3 years

7.08% p.a.

Maturity date: 30 June 2013

Specified distribution: 7.10cpu

Maturity value: $1.00 per unit

5 years

7.28% p.a.

Maturity date: 30 June 2015

Specified distribution: 7.30cpu

Maturity value: $1.00 per unit

7 years

7.32% p.a.

Maturity date: 30 June 2017

Specified distribution: 7.50cpu

Maturity value: $1.00 per unit


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Why Challenger? volatility asset class

  • Annuities continue to have a role in the provision of guaranteed income

  • The recent volatility highlights the benefits of guaranteed investment products

  • Challenger is largest annuity provider in Australia

    • Managing more than $6 billion of assets for over 60,000 annuity investors

  • Backed by a strongly rated Life Company

  • Competitive rates

  • An established and consistent leadership track record


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Disclaimer volatility asset class

The information contained in this presentation is current as at 1 June 2009 unless otherwise specified and has been prepared by Challenger Life Company Limited ABN 44 072 486 938 AFSL 234670. It is intended solely for licensed financial advisers. It must not be passed on to a retail client except where it is included as part of the financial adviser's own advice to their client and is not accredited to Challenger. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor.

This presentation has not been prepared to provide recommendations for any particular individuals. The examples used are for the purposes of illustration only. Individuals should seek expert financial planning advice to determine suitable recommendations for individual circumstances.

All information has been obtained from sources believed to be reliable and accurate at the time of publication. The taxation and Centrelink illustrations are based on current law at the time of writing, which may change at a future date.

Challenger Life Company Limited is not licensed or authorised to provide tax advice. We strongly recommend that an investor seeks professional taxation and social security advice for their individual circumstances.

All reasonable care has been taken to ensure correctness of facts stated and the examples given, and to ensure that they are fair and reasonable. We make no warranty in relation to, nor accept any responsibility or any liability for any errors or misstatements nor for any loss or damage arising out of, or in relation to the material in this presentation, however caused.

Past performance is not a reliable indicator of future performance. Offers of interests in the Challenger Guaranteed Income Plan are contained in the relevant current Product Disclosure Statement (PDS) issued by Challenger Life Company Limited which is available on our website www.challenger.com.au and should be considered before making any decision about the product.


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