Admitting you are an actuary has probably never been a great conversation-starter at dinner parties, and the profession’s preoccupation with death and mortality tables doesn’t help.
Visiting Australia for the FEAL Fund Executives Forum last month, one of Russell Investment Group’s most senior human abacuses, director of strategic advice Don Ezra, called for a name change to “longevity tables” forthwith. Another suggestion for actuaries looking to shed their morbid public image was to stop any nasty talk of ‘dying’. “One doesn’t die, one has an estate event,” Ezra cheerfully advised fund execs.
Of course a more meaningful way for actuaries to win brownie points is to give great advice. Ezra had plenty to dispense on how one could reach their “estate event” without running out of money, and suggested a big role for annuities in achieving that goal. Never popular in Australia because of the way they interfere with aged pension eligibility, Ezra urged the assembled funds to at least look at offering an annuity product – as long as the vehicle offered doesn’t have a guarantee, a fund doesn’t even need an insurance licence.
He admitted there were big mental hurdles for people to jump before they would consider buying an annuity. The irreversible, all-or-nothing nature of existing annuity products is a big one – “I was a millionaire, I bought an annuity and now I’m living on $70,000 a year” is the way Ezra summed up that thinking, pointing out that annuities have hitherto been locked into defensive asset positions.
People also worry that they will die too soon and forfeit years of potential payments, with no ability to bequest them to surviving dependents. However, Ezra said that his fellow actuaries were beavering away at new or tweaked structures for annuities, and that the first offering to “get the balance right” between security and flexibility would “make a killing” (oops, Don).
Innovative products on the drawing board included “pure fixed-term decumulation” products which permit cashing out; a product which attempts to guarantee a minimum withdrawal benefit for life by periodically increasing the payout percentage as life continues; a pooled trust “a bit like a tontine” which guarantees payments for the life of all members and confers a “mortality bonus” to survivors every time a member dies (Ezra refrained from grisly jokes about this) and, what seemed to be Don’s favourite, a product which allows one to hedge bets on their own longevity by buying a forward contract for an annuity to commence should one reach 80 or 85 years of age, at a fraction of the price one would pay for an annuity when one is, say, 60 years of age.
Here’s hoping one of this new breed of annuities will fulfil yet another Ezra homily concerning death, that “the real measure of a lifetime of successful financial planning is when the cheque to the undertaker bounces”.