Australia's ageing population is shifting from equities to safer income-generating assets, such as annuities, putting Challenger at the centre of the nation's fast-growing retirement income market, analysts at research house Nomura have said.
Nomura said Challenger's decision to sell off its mortgage management and financial planning arms to enable it to focus on its core annuities business had been wise in hindsight, giving it a 50 per cent share of a market that had posted a compound annual growth rate (CAGR) of 34 per cent over the past five years.
"With a strong focus on the annuities product, we believe [Challenger] is well placed to benefit from the long-term growth in the retirement income market," Nomura analysts Anthony Hoo, Victor German and Prue Rydstrand said in a joint report.
They said they expected the market segment to grow as a proportion of total super balances on the back of two factors.
Firstly, the initial group of workers who had a full working life of superannuation contributions would only start reaching retirement age around 2035, they said.
Secondly, Australia's ageing population means there will be increasing numbers reaching retirement age.
"Currently, the retirement income segment is estimated to account for about 30 per cent of the superannuation market. Rice Warner Actuaries have forecast the retirement income market will grow by a CAGR of 7 per cent to 2025, in real terms," the analysts said.
The retirement income market is currently dominated by allocated pension products. Annuities, an alternative to allocated pensions, make up only about 6 per cent of new inflows into this segment, giving Challenger plenty of scope for growth.
The analysts said the main beneficiaries of growth in the retirement income market would be the big five - the big four banks plus AMP.
However, they said they expected asset allocation trends to shift away from riskier assets towards income-generating assets, including annuities.
"To this extent, we believe Challenger - with a 50 per cent market share in annuities - should benefit from this shift," they said.
