オーストラリアの退職所得レビューと退職所得規約（Retirement Income Review and Retirement Income Covenant）は、退職年金制度管理者、業界の専門家および商品プロバイダーの行動を、退職後の収入を確保することに向けるきっかけとなりました。この行動の結果として、長生きリスクに関わる素晴らしい議論と、このリスクを特に退職者向けに管理するために設計した商品が現れています。
特に、市場連動型終身年金（保険型、積立型とも）は、多くのプロバイダーがそれぞれの地域で提供しています。こうした商品は、伝統的な年金のように生涯にわたる収入源を提供するだけでなく、投資家に運用市場の上下の値動きがある中で投資を継続する機会も与えるように設計されています。
長生きに対するソリューションが入手しやすくなってきています。そこで、我々は退職関連の難題の次のピースである、市場リスクへの対処について調査します。
The Retirement Income Review and Retirement Income Covenant have triggered activity from superannuation trustees, industry experts and product providers in bringing the spotlight onto generating income in retirement. This activity has already resulted in some excellent discussion around longevity risk and the products designed specifically to manage this risk for retirees.
In particular, market-linked lifetime annuities (in both insured and pooled structures) have been launched by a number of providers locally. These products have been designed not only to provide lifetime income streams much like traditional annuities, but also to give investors the opportunity to continue to participate in both the ups and downs of investment markets.
With longevity solutions becoming more readily available, this article explores the next piece of the retirement puzzle: tackling market risk.
Measuring market risk in decumulation
With central banks aggressively unwinding a decade’s worth of quantitative easing (QE) and monetary policy to tackle inflation around the world, the outlook for real returns is, at best, uncertain. This is further compounded with geopolitical events and the threat of recessions bringing major economies into a stagflationary environment reminiscent of the 1970s. On the back of this, the probability of a recession in 2023 has now risen to 65%1 in the US, the highest level since 2020.
In the world of accumulation, market risk is readily quantified with statistical metrics such as the Standard Risk Measure (SRM), volatility and maximum drawdown (each with their own flaws).
In decumulation, however, market risk should be measured from the perspective of the retirement income stream itself, not the investment performance in isolation. As a result, presenting a simple but effective measure for market risk in retirement is far less straightforward.
Income from retirement income streams can change with market movements
For many of the products delivering market-linked lifetime income streams, a starting level of income is provided along with a promise of a lifetime income stream. However, what isn’t promised is the level of this income stream going forward.
In fact, these income streams will only be stable if markets deliver these products’ assumed rates of return or agreed “hurdle rates” consistently each year. When investment returns inevitably deviate from these levels (as they would have across the past year), then the income streams provided by these products can very quickly change.
For example, with some balanced funds falling over 10% last year, the income stream on a market-linked annuity, assuming a hurdle rate of 5%, could be on track to drop by 15% this year. Whilst this might be absorbed and accepted by some members, for others it can unfortunately steer them down the dangerous path of risk aversion, causing them to de-risk into cash at the bottom of the market cycle.
How to quantify the impact of market risk on retirement income
Before we develop solutions to address market risk in retirement, we need simple metrics that can first be used to measure and compare this risk across different products and investment solutions. These metrics should be measured from the perspective of the retirement income stream itself and, as with all modelling of retirement outcomes, should be calculated on an ex ante (forward-looking) basis.
One metric that has been put forward to quantify market risk in retirement is the proposed Retirement Income Risk2 measure of the Australian Government Actuary (AGA). This measure is based on the negative standard deviation of the shortfall compared to the payment from an immediate lifetime annuity linked to the consumer price index (CPI). Whilst being logically sound, it can be difficult for members to conceptualise how it directly relates to the level of their retirement incomes and their own risk appetites.
For a member-facing metric, it is particularly important that it can be easily understood and directly relatable to the total retirement income members will receive each year.
How low can the income go?
A possible solution is for product providers to provide a simple metric for “how low can the income go?” when comparing products that deliver income streams that are linked to market movements.
A metric such as this can be simple to conceptualise for both advised and non-advised members and, importantly, can be directly used to determine whether a particular product or investment option fits within the member’s risk appetite.
Product providers can use this metric to help their members compare the market risk of different retirement products and investment options.
In technical terms, this metric could be the conditional tail expectation (e.g., CTE90) of the income level throughout retirement across real-world stochastic scenarios. In layman’s terms, the metric can be interpreted and explained as the average income level in bad scenarios, where “bad scenarios“ is defined as those projected to happen with a 1-in-10 probability.
A stochastic metric such as this also encourages funds to build investment strategies for retirement products that are systematic and, therefore, able to be modelled, as it will allow the benefits of any embedded risk management strategies to shine through.
Illustrative example of how retirement income can be presented to members
Using Milliman’s Goals-Based Analytics platform, we can illustrate in Figure 1 how the expected retirement income and market risk could be presented to members.
- Typical part age-pensioner couple, homeowners with $450,000 in super, and $200,000 in non-super assets
- 100% allocation of their super assets used to purchase a market-linked lifetime annuity3
- Typical growth investment option4
Figure 1: Total annual income
All values shown in today’s dollars using projected CPI.
With a simple illustration such as this, a member can very clearly understand the retirement income expected from their retirement strategy, as well as a reference point of how low this income can drop in “bad scenarios.”
In this instance, in bad scenarios, members need to be comfortable with their real total retirement income falling by 15.3%5 by age 77.
Next steps
Encouragingly, the structures and legislation are in place for lifetime income streams to be made widely available. Superannuation fund trustees and product providers are already well underway in providing these solutions to members.
Market risk, however, needs to be appropriately quantified so that members can easily understand how variable their retirement incomes can be. This then allows members to align products and investment options based on their risk appetites for how low of an income they are comfortable with. Only by going through this process of measuring this risk can we create a framework where there is a clear incentive for market risk to be appropriately addressed to the benefit of the retiree.
Solutions with insurance-backed guaranteed withdrawals, defined outcome structures and explicit risk management strategies using derivatives have all been successfully explored overseas, and to a lesser extent locally. These solutions can be explicitly designed to trade off some expected level of income to improve outcomes in these “bad scenarios,” giving risk-adverse members more palatable options to generate market-linked income in retirement.
With interest rates at their highest levels in over a decade and market risk fresh on members’ radar, now is the time to revisit this topic and to rethink how market risk can be measured and addressed to deliver better outcomes for members.
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1Per Bloomberg as of 16 January 2023. The median forecasted probability of recession is derived from monthly and quarterly surveys conducted by Bloomberg and from forecasts submitted by various banks.
2Australian Treasury. Retirement Income Disclosure Consultation Paper. Retrieved 2 February 2023 from https://treasury.gov.au/consultation/c2018-t347107.
3Note key product assumptions:
- Hurdle rate of 2.4% to allow for indexation of annual payments.
- Product in a pooled structure where mortality experience is based on Australian Life Tables 2015–2017 with 25-year mortality improvements.
4Asset allocation based on Morningstar Australia Growth Target Allocation Index: 69% equities (29% Australian equities, 3% property, 34% international equities, 3% emerging market), 22% fixed interest (14% Australian and 8% international) and 9% cash.
5The income from the market-linked lifetime annuity alone would have fallen by 20% under this metric but it’s been partially offset by the buffer provided by the Age Pension’s income test.