An Experience-Based Lifetime Pension in Practice

In 2021, QSuper (now called the Australian Retirement Trust) launched an innovative lifetime income stream option for retirees that pools idiosyncratic longevity risk. Design principles were to be simple and compelling, focussing on satisficing, rather than optimising. Starting income levels are age-based, gender neutral and enduring, while assets are invested in a traditional balanced growth fund (no seed capital required). The product provides a return of nominal capital invested, less income paid, in the event of early death (which is externally insured). Participants have the choice between single and joint life options, the latter based purely on the age of the youngest in the couple.
Unlike traditional annuities, pensions in payment are adjusted annually based on the actual experience of the pool, without smoothing, which removes the need for any reserving or subjective judgement. The annual pension adjustment process ensures ongoing solvency of the product and removes intergenerational cross-subsidies.
This presentation covers the design features, implementation and initial learnings from a new style of pension product that was actually launch in practice and has seen very encouraging take-up. It highlights the challenges of starting a new lifetime income stream (compared to theoretically modelling steady state) which includes matters such as minimum scale, volatility of initial experience, performing daily valuations and ongoing attribution analysis.
The presentation concludes by reflecting on the early pool experience, observed behavioural transactions by participants and product statistics in the first two years of the product’s existence. This features learnings and opportunities for future improvements of the product itself, as well as product design and development considerations for other providers, organisations and jurisdictions.
 
Find the Q&A here: Q&A on 'Pensions and Universal Income in Practice'