Financial advice needs to be made affordable, says Challenger’s chief

Unveiling a 17pc jump in net profits before tax, annuities group Challenger says affordable financial advice is key to delivering income security for retiring Australians.

Challenger chief executive Nick Hamilton. Picture: Britta Campion

Challenger is riding the wave of higher interest rates, with stronger earnings from annuity sales and a rosier outlook for the year ahead, but the retirement income giant says access to affordable financial advice remains the missing element to delivering income security for those entering retirement.

The nation’s largest annuities provider pleased investors with a 17 per cent jump in normalised net profit before tax to $608m for the 12 months to June, exceeding its previous guidance range of $555m to $605m.

The result was driven by another strong year for Challenger’s life business, with the company’s focus on growing its more valuable lifetime and longer duration annuities book boosting earnings in the division despite a 6 per cent fall in annuity sales to $9.1bn.

Lifetime annuity sales increased by 110 per cent to a record $1.5bn, and 88 per cent of new business annuity sales were for a duration of two years or more, up from 50 per cent two years ago.

Shareholders were rewarded with a fully franked dividend of 26.5c a share – a 10 per cent increase on last year.

Chief executive Nick Hamilton described the group’s financial performance as “very strong” as it capitalised on a larger number of Australians seeking “more guaranteed income” in retirement.

“The life business has been the powerhouse of the performance, and from a macro perspective, driven by this continuing increase in the number of Australians coming up to or entering retirement, and also aged care,” he said.

“The last couple of years, an area we’ve been incredibly focused on is growing the tenor, or growing the duration, of the annuities that we write, because these are more valuable – they increase the quality of the overall book.”

Looking ahead to 2024-25, Challenger provided normalised net profit before tax guidance of $640m to $700m – the midpoint representing a 10 per cent increase on the previous year’s result.

In a response to the federal government’s Retirement Phase of Superannuation discussion paper earlier this year, Challenger called out the need for Australians to have better access to information, advice and well-rounded retirement income products.

On Tuesday, Mr Hamilton said that while the discussion was moving in the right direction, there was a desperate need for affordable financial advice to be provided to a growing number of Australians reaching retirement.

“I think there’s a lot more that needs to be done in this space … around the importance of education of the options in retirement, because most of us don’t go through our working life thinking about this – more often than not, it finds you,” he said. “An area which we’ve been very vocal and very supportive of is around advice reforms. Good retirement will require affordable financial advice, and getting more Australians access to affordable financial advice will deliver far better outcomes, because you can’t expect people to be self-educated on what are complex and important decisions.

“We’re also working with different parties across industry that are looking at solutions, whether that be how the super funds are looking to solve member engagement, how digital advice is starting to develop options for wealth platforms and super funds to be able to engage with their members.

“I think the problem is understood, the solutions are still being developed.”

Mr Hamilton said Challenger had a strong platform to capture a significant growth opportunity in Australia’s burgeoning retirement income market as the country’s population continues to age.

Meanwhile, earnings before interest and tax within the company’s funds management business slipped 11 per cent to $55m, despite a 19 per cent increase in funds under management to $117bn.

Mr Hamilton said he expected the performance of the funds management business to improve in 2024-25, and together with ongoing growth in the life business put the group on track to hit its ­return-on-equity target – the Reserve Bank’s cash rate plus a margin of 12 per cent.

Normalised ROE was 15.6 per cent in 2023-24, up 290 basis points from the prior year.

afternoon at $7.34.