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Global Managers Circle as Retiring Boomers Cash In Billions

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(Bloomberg) -- Almost two million Australians will soon start drawing down A$300 billion ($218 billion) in savings as they leave the workforce, and that’s providing opportunities for domestic, and increasingly overseas, asset managers as retirement costs soar at the quickest pace in seven years.

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“The decumulation problem is the trickiest problem in finance to solve because everyone’s going to have a different set of needs and requirements and aspirations in retirement,” Richard Dinham, head of client solutions and retirement at Fidelity’s Australian unit, said in a phone interview. “The market is ripe for innovation.”

Australia’s pension system, widely applauded around the world for its accumulation phase where employers are forced to pay 10% of salaries into staffers pensions, is coming under increasing scrutiny for its drawdown preparations. This will be one of the biggest tests in years to face the country’s $2.4 trillion retirement pool -- the world’s fourth largest -- as government pressure builds to ensure older Australians have enough to fund their final years.

Allianz Retire+, a venture of Allianz SE and Pacific Investment Management Co., is in advanced talks with pension funds to help them develop their own products, according to Fintan Thornton, head of institutional solutions.

“We’re brilliant at accumulating savings to the point of retirement,” Thornton said. “The gap to date has actually been how do people decumulate those assets, how do we actually improve their living standards in that retirement phase.”

Unlike many retirement plans in the U.K., Netherlands and Japan, most Australian workers aren’t guaranteed a lifetime income when they exit the workforce and the government is forcing pension funds to design ways to help ensure retirees can sustain their lifestyle without outliving their savings. With living costs showing no signs of coming down, it’s becoming an increasingly acute issue that looks set to spill into the country’s election expected next year.

A retired couple are estimated to spend a little over A$63,000 per year for a “comfortable” lifestyle, a 2.8% increase in the year to September, the fastest pace since 2014, according to the Association of Superannuation Funds of Australia. KPMG estimates show 1.8 million Australians and A$300 billion of assets will move from the accumulation phase to decumulation over the next five years, according to a report from May last year.

“Australian retirees are now facing significant pressure on their budgets, given a range of unavoidable price hikes including petrol and council rates,” said ASFA deputy chief executive Glen McCrea. “It’s critical that future retirees are able to build sufficient retirement savings to ensure they can have dignity, health, vitality and connection in retirement.”

Australia’s prudential regulator on Monday said it won’t issue new rules or guidance surrounding retirement income plans in the short term. Still, it’s increasing its oversight amid concerns about proliferation of strategies that could create legacy issues or have high costs and poor performance.

Here’s a breakdown of what some firms are doing:

TelstraSuper

The $25 billion manager this month said it would allow its members who enter retirement to effectively keep their funds invested in its offerings. Small portions can then be allocated into a cash account for a monthly income, reducing the risk of having to sell bigger stakes during market downturns.

Challenger

The nation’s biggest annuities provider last month launched a market-linked lifetime payments plan to allow retirees to grow incomes in line with investment markets, rather than linking them to inflation or interest rates.

Magellan Financial

Magellan launched a product earlier this year where the majority of savings are invested in their global stock portfolios, while a small portion of funds are pooled in a so-called support trust -- also known as a cash bucket -- to guarantee a regular monthly income.

Allianz Retire+

Allianz’s latest offering lets retirees effectively pay an insurance premium for a guaranteed income for seven to 10 years while keeping the bulk of their savings.

(Updates with APRA supervision in ninth paragraph.)

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