When entrepreneurship meets retirement – Happy days in the golden years

Australia’s retiree population is growing rapidly and staying healthy for longer. Insurance giant Allianz is backing a new venture to disrupt the retirement income market and flip the way we think about the golden years.

Adrian Stewart was still a boy growing up in the Queensland bush when he learnt about his power to make things happen.

He was cricket-mad at the time. Regularly meeting friends at the swings under the gum trees, they dreamt of a cricket career. But Palmwoods, their little town, had no junior club.

One day, the local councillor drove past. “Hey, sir,” Stewart yelled until the car pulled over. “Can we set up a Palmwoods Junior Cricket Club? If you do that, then I’ll get the players.”

The councillor agreed. Stewart became captain and later played for the Sunshine Coast, where they nicknamed him ‘Palmwoods’.

The early success seeded Stewart’s career. Little did he know that decades later, he would inspire one of the world’s largest life insurers, Allianz, to shake up Australia’s enormous retirement income market.

Stewart saw an untapped opportunity to assuage the common fear of running out of money in old age.

Allianz caught on. It decided to back a new corporate venture in Australia – bringing together Allianz’s world-class insurance know-how with PIMCO’s unrivalled investment expertise to deliver security and stability throughout retirement. The business was designed to disrupt a market lacking the vision to ensure pensioners can create retirement incomes that last for life.

Since compulsory super started in Australia in 1992, the wealth stashed away in superannuation funds has increased to $3.6 trillion, the world’s fourth largest such asset pile.

With size came sophistication. Government and industry created an array of tools to help people save: pension calculators, nudges, and digital dashboards. Yet once people enter retirement, guidance is scarce.

Anxious about the future, around half of all retirees only withdraw the bare minimum, the Treasury stated in a recent discussion paper. The government mandates this minimum of 4% for retirees under 65 and 14% for those aged 95-plus. However, the Treasury writes that it was never meant to be a recommendation or guidance tool.

“There’s a huge percentage of people who live this frugal life because they think they’re going to run out of money,” says Stewart. “They don’t spend as much as they could, and so don’t have as comfortable a retirement as they should.”

The issue is known as longevity risk. How long will I live? Nobody can say and common life expectancy tables are misleading. The Australian Bureau of Statistics pinpoints today’s average life expectancy at 81.2 years for men and 85.3 years for women.

However, the numbers conceal that life expectancy keeps improving with age, meaning most people live longer than they think. Actuaries have found that an Australian woman who makes it to 65 today has an over 50% chance of living to 90.

“The longevity risk is a real factor,” says Stewart. Yet wherever he looked, there were few options to manage it.

Around 85% of Australian retirement savings sit in account-based pensions or allocated funds, which do not manage the risk of outliving one’s savings, according to the latest available data from industry regulator APRA.

Retirees can invest in annuities, which promise a fixed income for life, although many Australians perceive them as rigid and complex, making them an unpopular choice. They attract only around 3% of pension savings.

Alarmed, the government called on funds to find solutions. A new industry rule from 2022 urges super funds to do more to help members achieve comfortable, lasting retirement incomes. In November 2023, the Treasury followed up with another call for reform. It wants funds to innovate its products.

Few have acted so far. Why? “Innovation in the retirement income phase is very hard,” says Stewart.

He first pitched the idea of building the next generation of lifetime pension products nearly a decade ago during a job interview with PIMCO, one of the world’s largest fixed-income managers owned by Allianz.

The CEO asked about growth opportunities. Stewart duly replied, then paused.

“Look,” he said, feeling again like the cricket-mad kid who had nothing to lose, “I think there’s another opportunity for PIMCO to partner with its parent, Allianz, and completely disrupt the market.”

The opportunity was in decumulation. The product that Stewart had in mind existed in Allianz Life in the US and was unique in that it straddled both the accumulation and pension phases, blending a growth investment with an annuity. It offered downside protection in the growth phase to protect the client’s capital and then generated a predictable income for the rest of their life while still providing flexibility to cater to sudden expenses.

For the idea to succeed in the Australian market, it would need to be slightly modified and integrated within a client’s superfund account or Account Based Pension. That would allow the client to select the product as an option within their portfolio, securing it like an anchor.

Not surprisingly, Stewart got the job. The product would later become Allianz Guaranteed Income for Life (AGILE), but it took several years to develop for the Australian market. Allianz, headquartered in risk-averse Germany, wanted to see every number stack up – for pensioners and themselves.

They ran the venture as a disrupter and named it Allianz Retire+, building a highly skilled team of professionals from across the industry who share the vision and passion to bring something new to the retirement table. It meant Stewart could access the company’s global funding and technical expertise. Otherwise, he had to start from scratch. There was no proven business model and no guarantee.

“It’s survival. It’s about changing the segment. And if you don’t adopt that frame of mind, you will fail. Some of the brightest minds in this industry were the quickest to see the value in what we are doing differently. It didn’t take much to convince them to join the business, exponentially increasing our competitive advantage.

“It’s like any start-up or new technology. We are now starting to see this conversation becoming mainstream.”

Stewart recalls countless consultations with super funds, government ministers, regulators, financial planners and pensioners, which highlighted and reinforced the complexity and difficulty of innovating in the retirement income sector. Top accountants came from EY, PwC and KPMG. Twenty-five specialists were pouring over stacks of slides and financial models.

“I’ll never forget this meeting,” says Stewart, who, two hours into the talks, felt the sentiment shift from ‘wow, this is great’ to ‘wow, this is so hard’.

“I remember stopping and saying right, let’s take a step back. This is the exact moment where everybody else who had looked at doing this said, ‘We can’t do it’.

“I said we are not going to do that. If we can break through this and deliver into this market with our brand, global expertise, credit rating, balance sheet and strength with PIMCO, we can change the industry.”

“And that’s what we are doing.”

Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited ABN 27 076 033 782, AFSL 296559 and is the issuer of AGILE. Any advice provided in this material does not take into account your objectives, financial situation or needs. Prior to making an investment decision, you should read and consider the AGILE PDS (including about the guarantee) and TMD which are available on our website https://lnkd.in/gSqkczsK. PIMCO provides investment management and other support services to Allianz Retire+ but is not responsible for the performance of any Allianz Retire+ product, or any other product or service promoted or supplied by Allianz. Use of the POWERED BY PIMCO trademark, or any other use of the PIMCO name, is not a recommendation of any particular security, strategy or investment product.