Working towards securing better retirement outcomes
Global Investment Insights
with Andrew Boal, Partner, Actuarial Consulting, Deloitte
Andrew is a partner in Deloitte’s Melbourne, Australia office in the Actuarial Consulting practice. Andrew has spent more than 30 years advising clients on superannuation, life insurance, employee benefits, risk management, investments and talent management.
During his career, Andrew has also driven research and public policy in various areas of interest, including retirement income products and solutions, retirement adequacy, member disclosure and advice, member engagement and digital solutions, governance and managing conflicts.
On the point of retirement and ensuring the wellbeing of retirees, Andrew highlighted the importance of having a robust and effective retirement income system. “While our saving and investing systems are world class, there is scope to further improve the efficiency of how we draw down our savings in retirement”, he stipulated.
According to Andrew, this will require enhancements and innovations to the products we offer retirees, particularly in light of the new design and distribution obligations (DDO), to ensure that the retirement solutions offered are targeted at the appropriate cohort of members and is in their best financial interests.
Due to the complexity involved, retirees will also need access to relevant guidance and advice to help them mitigate longevity and investment risks, to give them greater confidence to spend their savings, especially in the early years of retirement when they are healthier. This will require developments in how we access and use relevant data, as well as the use of enhanced analytics and artificial intelligence in conjunction with new digital tools to provide a better experience for members and retirees. Technology will be an important cog in the wheel to make guidance and advice affordable for most Australians to help them build a suitable portfolio of retirement products.
One of the key concerns for Andrew in pursuit of enabling people to make better decisions about their retirement is cyber risk.
“One thing has become obvious, and that is that retirement is a very heterogeneous experience. The more information we have about a person, the better guidance and advice we can provide. With that comes concerns about data privacy and security, as well as a consumer’s right to access and share their own data”, Andrew emphasised.
He highlighted regulatory risk as another key concern, especially how it ultimately impacts consumers.
“Staying on the cyber theme, due to the outstanding success of Australia’s compulsory retirement saving system, more and more Australians are now retiring with more money. This brings with it greater complexity, especially in relation to how to use those savings effectively while managing the investment and longevity risks in retirement. With the number of advisers falling in recent years and the cost of advice increasing, the ‘retirement knowledge’ gap is widening.
Technology has to play a greater role, whether it be in the form of retirement income projections or online tools and calculators, through to more comprehensive robo-advice tools. But, the regulatory environment needs to facilitate, and even encourage, change, rather than acting as an inhibitor to helping more retiring Australians deal with all this complexity”, Andrew explained.
As an actuary, advising clients on superannuation and life insurance, one of the key themes that has interested Andrew for a long time has been global population growth and demography.
As many may know, it took until around the year 1800 for the world’s population to reach one billion people. The industrial revolution, which started in the mid-18th century, seemed to be the catalyst that changed everything. By 1760, coal had become the preferred choice to power the steam engines to make iron, which in turn was used to improve machines and tools, to build bridges and ships, and ultimately to drive prosperity. From there, it took only 130 years to add the second billion people, then 45 years to reach four billion people in 1974. We are now on the cusp of reaching eight billion people by 2023. However, this rapid population growth, along with further industrialisation has resulted in a number of associated risks, such as those related to our climate as well food and water security, waste management and health. “But, this is where I see the greatest opportunities for investors in the medium-term future. It is a really exciting time for investors, given that a substantial amount of CAPEX will need to be invested and new innovations developed as we transition to a lower carbon world”, Andrew highlighted.
On this theme of global population growth and demography, Andrew singled out where he expects to see the greatest investment opportunities over the coming years, across a geography, a sector and an asset class:
Geography - The continued rise of Asia and other emerging economies, particularly the growing middle class. This will extend to how their spending patterns will change as more and more of their consumers are wealthier and can afford more discretionary items.
Sector - Health and how we are going to deal with all its associated challenges. We have recently witnessed the major role of innovations in pharma to help us deal with COVID-19. There are also many other medical issues that are very costly to the community such as dementia and how we will provide aged care to an ageing population in many countries around the world.
Asset class - Infrastructure will continue to be a major opportunity, especially where it overlaps with some of the other major themes such as health and aged care, and of course the climate related infrastructure that will be necessary as we transition to a lower carbon world. Global ambitions and government policies in these areas will drive further innovation and investment.
Andrew left us with some broader operational challenges facing his business and the institutional investment community generally.
“In terms of working with our clients, we are, of course, a people business. Attracting and retaining the right people with the right attitude to help our clients is always a challenge. In an evolving environment, ensuring our consultants retain their enquiring minds and desire to learn, understand and help is key”.
He continued, “certainly, working from home for long periods of time during COVID-19 lockdowns and limits on interstate and international travel has presented new challenges. This has brought into question how investment teams, as well as other teams more generally, will work together in the future, how they will balance the flexibility of working-from-home with the cultural and collaboration benefits of bringing people together. There is a risk of increased ‘groupthink’ in the absence of an environment that has been able to nurture strong interpersonal relationships and the respectful challenging of ideas.”
“In my time in the business, I have found the mentoring and coaching opportunities from people being together in the office to be profound, especially when it comes to those informal opportunities to provide learning experiences”, Andrew emphasised.
“Another major challenge I think is keeping your eye on the ball in the face of new regulatory distractions, that could cause some investors to alter their strategies to reduce the likelihood of failing an underperformance test, for example. Where the consequences are so significant, I don’t think it would be a surprise to anyone if investors become more benchmark aware. There is also a concern that the focus on cost and scale may inhibit some innovation in institutional investing and the divergent strategies that some smaller participants, who end up leaving the industry, may have adopted”, Andrew concluded.
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