Introduction Methodology Results Summary

Slow and Steady:Drawdown Behaviours in Phased Withdrawal

Retirement Income Products

Igor Balnozan

University of New South Wales

i.balnozan@unsw.edu.au

May 2018

Supervisors:Associate Professor Anthony Asher

Scientia Professor Robert KohnProfessor Denzil Fiebig

Igor Balnozan (UNSW) Drawdowns Working Paper May 2018 1 / 23

Introduction Methodology Results Summary

Spoilers

1 Introduction

2 Methodology

3 Results

4 Summary

Igor Balnozan (UNSW) Drawdowns Working Paper May 2018 2 / 23

Introduction Methodology Results Summary

Spoilers

1 Introduction

2 Methodology

3 Results

4 Summary

Igor Balnozan (UNSW) Drawdowns Working Paper May 2018 2 / 23

Introduction Methodology Results Summary

Motivation

I Population Ageing

I Sustainability (DB to DC, Government Pensions)

I Retiree Risk Management and Wellbeing

I Phased withdrawal / account-based pension / allocated pension

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Introduction Methodology Results Summary

Research Aim

Identify and explain drawdown behaviours in phased withdrawalproducts, to inform appropriate retirement income productdesign, policymaking and financial advice.

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Introduction Methodology Results Summary

Data Description

I 44,000 pensioners

I Multiple super funds

I Up to 12 years of drawdowns observed

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Introduction Methodology Results Summary

Spoilers

1 Introduction

2 Methodology

3 Results

4 Summary

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Introduction Methodology Results Summary

Methodology

I Three ComponentsI Panel Data ModelsI Grouping and Cluster AnalysisI Categorical Regression

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Introduction Methodology Results Summary

Panel Visualisation – Regular Drawdown Rate

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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Introduction Methodology Results Summary

Panel Visualisation – Excess Drawdown Rate

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Introduction Methodology Results Summary

Panel Visualisation – Regular Drawdown Amount

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Introduction Methodology Results Summary

Panel Visualisation – Account Balance (FY Start)

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Introduction Methodology Results Summary

Manual Grouping – Follow Minima

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Introduction Methodology Results Summary

Manual Grouping – Draw 10%

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Introduction Methodology Results Summary

Manual Grouping – Prefer Level Amount

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Introduction Methodology Results Summary

Cluster Analysis – Level Amount

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Introduction Methodology Results Summary

Cluster Analysis – ‘Revise Down’

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Introduction Methodology Results Summary

Cluster Analysis – Minimum Pre-GFC

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0.075

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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Introduction Methodology Results Summary

Cluster Analysis – Quickdraw

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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Introduction Methodology Results Summary

Spoilers

1 Introduction

2 Methodology

3 Results

4 Summary

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Introduction Methodology Results Summary

General Findings

Table: General Findings

Draw Regularly atMinimum Rates

Make AdhocDrawdowns

Draw Regularly atHigher Rates

Draw Ad-hoc atHigher Rates

Older More likely More likely Less likely More likely

Face Higher MinimumDrawdown Rates More likely — More likely Less likely

Female — — Less likely —

Larger AccountBalance — — Less likely More likely

Retired Later — — More likely —

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Introduction Methodology Results Summary

Behavioural Findings

Two drawdown ‘rules’ explain > 75% of sample:I 48% used MDR as anchorI 28% liked level dollar amounts

I 35% ‘revise down’

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Introduction Methodology Results Summary

Behavioural Findings

Table: Behavioural Findings

Follow MinimumDrawdown Rates

Draw Level$ Amounts

Female More likely —

Larger Account Balances More likely Less likely

Retired Later More likely —

Legacy Account More likely —

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Introduction Methodology Results Summary

Implications

I PolicyI Gravity of minimum drawdown rates

I Product designI Stepped annuities OR better value

I Financial adviceI Modest annuities + liquid account

I Regulation (Prudential Standards)I Financial advice: whose best interests?I CIPRs: design and defaults

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Introduction Methodology Results Summary

Spoilers

1 Introduction

2 Methodology

3 Results

4 Summary

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Introduction Methodology Results Summary

Summary

I Analysed drawdown behaviour in account-based pensions

I Largely heuristic- and/or default-driven behaviour

I Opportunity to extend analysis

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Introduction Methodology Results Summary

See More

I Working paper on APRA WebsiteI http://www.apra.gov.au/AboutAPRA/WorkingAtAPRA/

Documents/I%20Balnozan_Brian%20Gray_2017.pdfI Literature reviewI Technical detailsI More on panel data modelsI More pretty pictures

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