Since closing its lifetime annuity to new money last September, Axa felt the decision has been vindicated as last year’s December quarter proved to be the slowest annuity sales quarter on record since 1994, according to Foley. Another manufacturer, Challenger, also closed its lifetime annuity but continues to believe annuities have more of a future than Australians may credit them for. Only a few weeks ago Challenger’s head of technical services, Alex Denham, issued a press release – hopeful it would reach financial adviser ears – demonstrating how an annuity is “an ideal strategy” to protect retirees from rising deeming rates.
Denham later told Investment & Technology how annuities could also defend a retiree’s investment portfolio from the vagaries of a volatile or bear market. “There’s definitely an argument to have an annuity alongside the allocated pension in the current environment,” Denham says. “Allocated pensions would be needing to sell down assets to maintain income at the moment even though selling at this point in the cycle is not advisable. If they were to buy an annuity, they could pay it into the super fund and use that as income to fund their pension [thereby protecting the investment capital].”
While Russell’s Don Ezra seemed to favour annuities among his ideal “decumulation” strategies, he made it clear to the fund executives that he did not hold the answer of what product would be the winner. But he did flag a few possibilities as food for thought.
One idea was an annuity forward contract, whereby a person pays up-front a fraction of what would be required for a regular lifetime annuity, on the grounds they can only access the income from a certain age many years after the payment date.
Another idea was a pooled “longevity” trust, whereby all investors buy units in a trust that provides an income for life but when they die their remaining capital is distributed to the capital investment of those still alive. Suncorp-owned Asteron already released a similar product with elements of both these ideas two years ago, hailing it as an Australian first at the time. It appears to still be the case. The Asteron Longevity Income Stream (ALIS) “is designed to provide income to investors that increases the longer they live”, according to Asteron technical services manager Leila Moores.
Basically, ALIS takes a small portion of the super account at retirement and invests it for 15 to 30 years during the “establishment phase” in an investment of the investors’ choice. Between the ages of 80 to 85 the account switches to the “income phase”. If the investor dies before the income phase kicks in, around 25 per cent of their investment goes to their estate and the balance is distributed to top up the other ALIS investors accounts – called a “longevity boost”. When the person dies in the income phase, the capital is distributed as a longevity boost. “The whole mission of this product is to give people certainty in their retirement,” Moores says.