Providers of post-retirement products are seeing soaring growth in assets under management as the number of baby boomers entering retirement grows.
Challenger saw a 38 per cent growth in fixed term and lifetime annuities for the six months to the end of December 2013.
Colonial First State, the leading provider of allocated pensions, has seen net inflows of $3 billion, $1.6 billion and $2.0 billion in the last three years and compound growth of 21 per cent over the last four years.
Challenger’s highest growth was in lifetime annuities, which sold twice as much in the last six months of 2013 as in the whole of 2012.
And it believes annuity sales will increase by between five to 10 times by 2020. Nearly all of its business is coming from financial advisers, some of it directed through seven super funds that have put Challenger annuities on their approved product lists.
Michael Clarke, head of institutional at Challenger, said the typical annuity sale was to a retiree who wanted to guarantee a base level of income from their account balance and for the remainder to stay invested in growth assets. In some instances, this arrangement allows individuals to take a more aggressive growth policy with the remainer of their account based funds, than with a typical allocated pension.
Clarke attributed part of the growth to larger adviser forces employed by superannuation funds.
Deferred annuities and non-account based annuities are another area of potential growth.
“We see extremely strong demand for deferred annuities when the regulations permit,” says Clarke. “We have had those conversations with the funds and there is very keen interest in the progress of government decision making.”
Challenger is also developing a unique proposition whereby a member can buy an annuity direct from their super fund without using a financial advisor. This ‘non-account based pension’ will remove the complexity of purchasing an annuity says Clarke.
Nicolette Rubinsztein, general manager retirement and advocacy, Commonwealth Bank of Australia, saw growth coming from the role in advice increasingly leading to retirees less likely to take their account balance as a lump sum. She saw that the clients of Colonial First State’s allocated pension product were typically using around 80 per cent of their account to provide an income stream and that this figure was tracking upwards over time.
Nicolette Rubinsztein and Michael Clarke are both speaking at the Post Retirement Conference at Doltone House, Sydney, on Tuesday March 4. To find out more and to register see www.postretirement.com.au