Challenger Life: Improving financial security in retirement

Have you ever wondered how to achieve financial security in retirement? Annuities can be a complex investment however can achieve fantastic results if used correctly. Joe Kelly from Challenger Life joins Kurt for a discussion about all things Annuities and fixed interest and how they may be used as part of a financial strategy to achieve peace of mind in retirement.

Video transcript

Hey everyone, today I'm joined by Joe Kelly from Challenger. Thank you so much for coming out here today.

Thank you for having me.

Okay, so for those who don't know, tell us a little bit about Challenger.

Surely. So Challenger Life is actually Australia's largest provider of annuities. We provide regular income to thousands of customers across Australia. We're a multi-award-winning life company, which is nice, and we have about $22 billion in assets under management as at June 30 this year. Challenger’s main goal is improving financial security in retirement.

Okay, can you give me an example of that?

Sure. So Challenger’s investment strategies or offerings—we have about four products that will probably be relevant. The first one is our term annuities. Term annuities provide a secure, guaranteed regular income for a fixed term of your choice. That could range from, say, one year to 50 years. This regular income will come at a frequency that could be monthly, quarterly, annually, or half-yearly, and it will be paid regardless of market performance. It’s a differentiated offering and has flexible ca...

Another one of our offerings that’s had a lot of traction lately is our guaranteed income fund. That’s an offering which is quite similar to the previous one, except it’s for a fixed period of time. It still provides a monthly regular income and has an investment term that includes a lump sum payable at the end of maturity, which is known upfront.

The next one is our flagship offering—our lifetime annuities. This is really targeted more towards the retiree space. As it says in the name, it’s a payment method that’s provided for a client’s life. As long as you’re alive, you will receive a regular payment on a monthly frequency, regardless of how long you live. It can also include a reversionary benefit, which provides clients peace of mind in retirement. We’re excited to also offer an inflation-linked option or a market-linked option as part of...

In addition, depending on a client’s situation, it can provide an additional benefit on their increased age pension side of things, if that’s relevant for that client.

The final offer we have is a quite bespoke, niche offering—it’s an aged care solution. It’s a product specifically designed for people in aged care. It provides a monthly income and a 100% death benefit, which can be payable to nominated beneficiaries or the estate depending on your choice.

Inflation is a hot topic at the moment. So how does Challenger cater for this with your products?

It’s a very good question. Inflation is definitely a hot topic at the moment. One of the things we focus on is the ability to link inflation to some of our payment options. For example, with our lifetime annuities, you can choose to have a full CPI option. That means your payments will go up by whatever the CPI is each year. Inflation is something that should be more relevant for retirees because over a 25-year period, 3% inflation will actually halve your purchasing power.

To put that into context, if I’ve got $50,000 to spend at the start of retirement, at the end of that 25 years it’s only going to buy $25,000 worth of goods. Another way to look at it: if I want to buy $50,000 worth of goods in 25 years’ time, I’m going to need $100,000 at that point. So inflation is something that has been less focused on over the past 10 to 20 years, but it’s now very much at the forefront compared to historically.

So Joe, are annuities just for retirement?

It’s a good question, Kurt. I’ve mentioned retirement a lot. Challenger is focused on providing customers with financial security in retirement, but we’ve also found there’s demand from clients outside retirement. The products are available for anyone above the age of 18. We’ve seen demand especially in the pre-retiree space or younger clients using company trusts, SMSFs, or other structures that want a fixed, guaranteed return not correlated to markets.

Okay, Joe, what is the Challenger guarantee and how can you offer guaranteed payments?

Good question, Kurt, and I assume a lot of clients are thinking the same. I’ve said “guarantee” a lot in this interview. Challenger is regulated under the Life Insurance Act and is compliant with these regulations, supervised by the Australian Prudential Regulatory Authority (APRA). APRA regulates the banking, life, and superannuation industry. In our case, we're regulated to ensure we’re able to meet our client obligations now and into the future.

Challenger Life holds significantly more capital in the statutory fund than the APRA minimum requirement. So even in an unfortunate event like a financial market crash or property crash, our customers’ annuity payments from the statutory fund will still be made.

So where can I learn more about Challenger?

Good question, Kurt. The best place—everything I’ve said today—is on our external website, accessible by anyone. But I think for a lot of our products, a more specific, case-by-case assessment is needed. For personal circumstances, that would be through yourself and Rachael at the Your Wealth Consultants team to ensure they get a tailored plan.

Great. Thank you so much for coming out here today, Joe, and providing such valuable insight.

Thanks for having me, Kurt.