Macquarie Longevity Solutions has bet against the Henry Review recommending the Government become a lifetime annuity provider, launching a “Lifetime Income Guarantee” product combining a lifecycle asset allocation strategy with a protected capital base accessible at any time, which it claims is more attractive to consumers than traditional annuities, and is useable by any platform or industry super fund.

Clients will invest in an account-based pension that in turn buys a Macquarie Lifetime Income Guarantee Policy, with $50,000 the minimum investment required.

The head of Macquarie Longevity Solutions, Andrew Robertson, said the policy was intended to be a ‘set and forget’ holistic strategy for somebody with a modest amount of money at retirement, or could be a “core” guaranteed strategy for those with a high account balance, “which might then encourage them to take more risk with other parts of their portfolio”.

The policy has two main components. There is an investment account, established by the initial investment, whose balance changes over time based on the performance of the underlying investments – Macquarie Funds Management index funds which follow a ‘lifecycle’ glide path down from a 60:40 mix of growth:defensive assets at age 65, to progressively more defensive profiles. (A separate option targeted at SMSF investors allows clients to build their own asset allocation.)

Then there is a guaranteed base, which starts as the value of the investment account, and ratchets up when the underlying investments perform but tracks their high-water mark – that is, it does not fall when the investment account balance starts to decline.

Monthly income payments are initially drawn from the investment account, and for the first five years after the policy is purchased (typically at age 65) the income rate comprises 4 per cent of the ‘guarantee base’ amount, plus a 2 per cent ‘lifestyle bonus’.

Robertson said this feature was developed after focus groups of new- or near-retirees said the first years of retirement were when it was most important for them to have a healthy income.

The base rate amount increases to 4.5 per cent after 75 years of age and remains there until the client dies. The lifestyle bonus remains at 2 per cent if the investment account has performed well, although it could disappear entirely if the underlying investments perform badly.

“We’re only doing there what retirees have told us they would do anyway – which is after a period of bad performance, you rein in your spending,” Robertson said.

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