Living longer: Lessons from Australia

00:00:03: Replay by Hannover Re, expert insights on life and health

00:00:07: insurance.

00:00:15: Why Australia is among the global leaders in retirement income, 

00:00:19: how longevity misconceptions are addressed... ...and what modern retirement-income products require.

00:00:26: Welcome to RePlay By Hannover Re!

00:00:28: I'm your host Susanne Loomis and today we'll talk to Andrea Staehr & Kris Boundy about Australian Longevity.

00:00:35: This podcast is for general information only, no professional advice and a subject to change.

00:00:40: You can find the full disclaimer in our show

00:00:42: notes.

00:00:43: Welcome Andrea and Kris.

00:00:45: Thank you Susanne.

00:00:46: Hi Susanna thank you for having us

00:00:48: So with us at the recording studios.

00:00:50: Andrea, General Manager Life & Health Global Longevity And then Kris, General Manager Reinsurance Business at Hannover Life Re of Australasia

00:00:57: is joining us remotely from Sydney And both of them are working closely together on topics like longevity risk and retirement planning.

00:01:07: I want to start with that, what is longevity risks?

00:01:10: Why should retirees care about

00:01:12: it?

00:01:13: Simply put, longevity risk is the risk people live longer than expected – creating a financial risk without living retirement savings.

00:01:21: As life expectancy increases, retirees face a longer planning horizon which means they may run out money if they underestimate how long they will.

00:01:29: It is becoming more pressing as Australians live longer than ever before.

00:01:33: What we also find, when retirees are aware of this longevity risk.

00:01:37: it may result in them underspending during their older years which may negatively impact the quality life.

00:01:43: Re-insurers ensures and superannuation funds play a critical role on accumulation phase for retirement savings in Australia And its natural fit to support members achieve financial goals through their retirement year.

00:01:57: So why is this often overlooked in retirement planning?

00:02:01: Yeah, research shows most people underestimate their life expectancy by several years which leads to poor retirement planning.

00:02:09: One reason is that many people plan for average life expectancy and do not take into account the probability of living significantly longer than the average life expectancy And this leaves about half off retirees underfunded.

00:02:22: Additionally, The grandparents' life expectancy as a basis for their own life expectancy.

00:02:28: But by doing so, they ignore the improvement of life expectancy over two generations – which is very significant!

00:02:35: Ninety-eighty doesn't feel that long ago but between then and now…the average age at which pensioners have died in Australia has increased by more than five years.

00:02:45: And Hannover Re identified Australia as a growth area for longevity business since two thousand seventeen.

00:02:51: what made australia stand out and why is its experience so relevant to entourage globally?

00:02:57: Australia has a highly developed superannuation system with mandatory contributions, large accumulated assets yet faces similar challenges other markets lack of diversity in retirement income options behavioral reluctance to annuitize and misconceptions about longevity.

00:03:14: So the real innovation is happening now in how we help retirees turn savings into income for life, unlike many countries that rely on compulsion or heavy incentives at this stage Australia's tackling the challenge by designing products that genuinely meet retiree needs for flexibility access security.

00:03:32: And Andrea has the awareness of longevity changed since you began working?

00:03:38: Yeah, I have started in two thousand nine working on the longevity field.

00:03:42: Back then re-insuring longevity risk was mainly a matter of UK market.

00:03:47: however nowadays this is an important topic on global basis.

00:03:51: In Australia we've seen real shift since twenty seventeen.

00:03:55: Initially focus was building up superbalances which means that the focus was on accumulation phase to ensure people saved enough for retirement.

00:04:05: The conversation now shifted into decommelation phase with a focus on helping retirees manage their income for life.

00:04:12: For example, the introduction of the Retirement Income Covenant has prompted super funds to develop strategies for the retirement phase and not only for the savings phase.

00:04:22: The number of conferences new providers and international players entering the market They all point to growing recognition that longevity risk in retirement is a challenge we can't ignore anymore.

00:04:34: Absolutely!

00:04:34: What about you Kris?

00:04:36: For me, the biggest change over the last few years is that the conversation in Australia has genuinely shifted from how big your super balance to How do you turn that balance into income?

00:04:46: That you can rely on for life.

00:04:48: Yeah

00:04:48: and that shift has accelerated as funds have focused more on retirement outcomes And are investing more In this objective particularly since The Retirement Income Covenant came.

00:04:58: From a personal perspective, my recent experience has focused on group re-insurance and the accumulation side of The Retirement Journey protecting members' retirement savings from unexpected events.

00:05:08: That experience puts me in a strong position to add a local practical lens on how those accumulated balances are now being transitioned into income solutions that need to work in the real world.

00:05:19: And what hasn't changed –and it's something I really value– is When we've looked at early lifetime income concepts, We have been able to get the right people on one call.

00:05:29: Pricing, structuring global longevity expertise and move forward quickly.

00:05:35: that combination of local insight and global experience is a real strength

00:05:39: Absolutely.

00:05:39: And looking at the pension systems what are the main challenges you see in countries like Australia The Netherlands or Germany when it comes to managing longevity risk?

00:05:50: Yeah those countries actually face similar challenges.

00:05:53: We have already discussed the rising longevity risk.

00:05:56: In addition, fertility rates are falling which increases pressure on the pension systems.

00:06:01: in Australia There's a strong reliance on account-based pensions or drawdown plans Which effectively require individuals to self manage their longevity risk.

00:06:10: The challenge now is to shift this risk from the individuals To the insurance sector to give people the confidence that they're savings will last throughout their lifetime.

00:06:19: The Netherlands has a strong funded system.

00:06:21: They are undergoing a major transition to new defined contribution framework, where ensuring fair redistribution and designing effective longevity risk sharing mechanisms are central concerns.

00:06:33: And in Germany the retirement basis is public pay-as-you-go system which is heavily affected by demographic aging.

00:06:40: This results in longer retirement durations and increasing sustainability pressures.

00:06:45: The adequacy of pay as you go systems is projected to decline under these demographic shifts so structural changes are needed.

00:06:53: So overall, Australia the Netherlands and Germany face a shared challenge of balancing longer life spans and declining fertility rates with sustainable and equitable retirement income systems And we see a lack of education or longevity risk in all three countries.

00:07:09: Yeah!

00:07:09: I want to revisit that at some point.

00:07:12: But first i wanna ask seeing that Australia has one world's most mature pension system How is that shaped retirees' behavior when it comes to turning savings into income?

00:07:24: Australia's system gives retirees full access to their super, reinforcing a nest egg mentality.

00:07:30: People see their savings as lump sum-to manage not as the source of lifelong income.

00:07:35: The nest egg culture has been very successful in the accumulation phase boosted by strong investment returns and a mandatory twelve percent employer contribution.

00:07:43: However, this hasn't translated to an income and retirement mentality with most retirees using in account-based pension which gives them full access to their nest egg at any point.

00:07:54: So if retiree see they're super as a lump sum it would also change how the approach risk And without in mind why do so many retirees end up self ensuring there?

00:08:06: longevity risk?

00:08:08: Yeah In Australia only about three percent of assets are longevity products compared to much higher rates in some European markets.

00:08:16: This is driven by strong investment culture, the desire for flexibility and behavioral biases like underestimating life expectancy and fear of losing capital upon

00:08:26: death.".

00:08:27: And what are the consequences of this trend for individuals and insurers?

00:08:32: The result is that many retirees either risk running out of savings or they're too cautious and underspent –in addition of illiquidity and the preference for control over our own assets drive those developments.

00:08:47: For insurers, this means missed opportunities to manage longevity risk more effectively in similar patterns as seen globally not just

00:08:55: Australia.".

00:08:56: And how are new products on Australia different from those other markets?

00:09:11: with flexibility which is quite different from many overseas markets.

00:09:15: These products often allow for flexible withdrawals, different reversionary options for couples and investment-linked returns sometimes with hurdle rates that can bring income forward earlier in retirement.

00:09:26: In many other markets lifetime income products are still more rigid or purely fixed in nature whereas Australia has leaned into flexibility to better match how retirees actually want to use their savings.

00:09:38: So let's go back to something you mentioned earlier, Andrea.

00:09:42: How can education for consumers and financial advisors help overcome misconceptions about life expectancy and retirement planning?

00:09:51: Education is absolutely critical both for advisers and consumers because longevity risk it often misunderstood.

00:09:58: like I said earlier people tend to anchor their expectations to how long that parents or even grandparents lived But the remaining life expectancy for sixty-five year old has increased by around twenty percent since early nineties in Australia.

00:10:11: And improvements are continuing!

00:10:14: As a result, someone aged fifty five today and retiring at ten years' time can expect to live about five or six years longer than a sixty-five year old retiring in nineteen ninety.

00:10:25: If you're on a partnership then risk is even more pronounced.

00:10:28: There's roughly one in five chance that at least ONE partner.

00:10:33: We live to age hundred.

00:10:35: Without education, people tend to underestimate this risk and overestimate how long their savings will last exactly the gap that lifetime income solutions are designed to address

00:10:45: In many.

00:10:45: retirees make good decisions once they understand numbers in a transparent way And that aligns with we approach product design conversations.

00:10:52: Australia has introduced reforms like Australia's retirement income covenant and seeing new lifetime income products.

00:11:00: What solutions have proven effective in addressing longevity risk?

00:11:03: And is there something other countries can learn from these innovations?

00:11:08: Regulatory changes, particularly the Retirement Income Covenant, have shifted the focus of super funds much more towards the retirement phase—and that's been a major catalyst for innovation.

00:11:18: Funds are now supporting members earlier recognizing how difficult this transition really is.

00:11:25: People are not only stopping work, but also making financial decisions that will affect the rest of their

00:11:29: lives.".

00:11:30: With around two and a half million Australians expected to retire over the next ten years there simply aren't enough advisors who provide one-on-one advice for everyone.

00:11:39: And super funds are uniquely placed here!

00:11:42: They're trusted by members can provide scalable guidance and solutions.

00:11:46: The most effective products have gone beyond just meeting financial needs and instead address retirees' fears.

00:11:53: Things like running out of money, loss of flexibility or dying too early.

00:11:58: That's why we are seeing features such as death benefits income drawdown flexibility multiple investment options And liquidity built into lifetime income products.

00:12:09: Other markets can learn from Australia's focus on combining trust guidance flexibility and longevity protection rather than treating retirement income as a one-size fits all problem.

00:12:20: Do

00:12:20: established re-insurance solutions like longevity swaps work in the Australian market?

00:12:26: What has Hannover Re's experience been with

00:12:28: these?".

00:12:28: So traditional longevity swabs worked well for simple fixed benefit pension structures, but Hannover Re recognized early that they weren't well suited to Australia's new breed of flexible investment linked retirement products Because these products allow withdrawals, changing income levels different reversionary structures and investment participation.

00:12:49: so the traditional longevity swap doesn't work as intended.

00:12:52: And how did you address that?

00:12:54: The way we approached this was to be very pragmatic start with a risk that truly needs managing design and deliver.

00:13:01: That's allowed us to move faster and maintain consistency.

00:13:04: For example, we've had to develop bespoke re-insurance solutions that isolate and manage the longevity risk while allowing product providers to retain the flexibility that retirees value.

00:13:15: That close collaboration between Product Design & Re-Insurance Structuring has been a defining feature of our experience in Australia –and big reason why this market has been able to innovate as quickly.

00:13:26: Yeah, this is where it comes in handy to have a wealth of local and global knowledge that stems from decades off developing longevity solutions.

00:13:35: And I make some real difference too partner with someone who has empowered to act and will commit.

00:13:40: exactly That's our somewhat different approach

00:13:42: yeah?

00:13:44: So what lessons specifically Have you learned from working With partners in different countries and how can these insights help ensures another parts Of the world?

00:13:52: for The key lesson that we learn Is said one sites fits all Solutions Don't work.

00:13:57: So products have to be tailored to local preferences and regulatory environments, flexibility education and collaboration are essential.

00:14:06: We regularly meet within our global longevity expert network and discuss behavioral biases that our colleagues have seen for example in Europe or Asia.

00:14:15: sharing these insights with an hour Network early helped us share products tailored to the Australian needs.

00:14:20: mm-hmm And looking ahead what trends do you see in global longevity markets?

00:14:26: What should insurance specialists keep in mind as they develop new

00:14:41: solutions?

00:14:56: developing fit-for-purpose products and investing in education for both advisors and consumers.

00:15:02: The markets that progress fastest will be those, but keep things simple and

00:15:06: consistent.".

00:15:07: And that mirrors how we approach things.

00:15:10: start simple iterate fast and stay transparent.

00:15:13: Yeah That's a great summary.

00:15:15: So thank you both Andrea and Kris for talking about the Australian longevity market with us.

00:15:21: Thanks Susanne was great to be here.

00:15:23: Thank You Susanne.

00:15:24: So today we discussed how Australia has become a proving ground for flexible and modern retirement income solutions that other markets can learn from.

00:15:33: We looked at how retiree behavior shapes product success, why education is essential and how our pragmatic approach and consistent global expertise are key to creating solutions that actually work.

00:15:46: Thank you for listening to Replay by Hannover Re and we hope you found this conversation helpful.

00:15:51: And if you would like to learn more about the Australian life and health insurance market, check out our episode on electronic health records.

00:15:57: We'll link that in the show notes.

00:15:59: Also don't forget to subscribe for more episodes.

00:16:02: leave us a review and stay connected with Henovery on LinkedIn until next time.

00:16:17: The Thoughts, Ideas, Documents and other content discussed or shared in this podcast are not intended to constitute any professional advice.

00:16:24: Hannover Re and the participants aren't liable for any damages resulting from usage of the contents on these podcasts.

00:16:29: For further information please see the show notes.