Mercer is applying for a global patent for a group self-annuitisation product that already has three major super funds signed up for launch in 2015.
At a fee of 40bps the product is intended to provide better value for money than lifetime annuities where investment gains above the amount needed to meet guaranteed payments are kept by the insurer.
Mercer describes LifetimePlus as a “game changer” for the retirement market and says it will require around half the amount of capital as an annuity to secure a similar annual income.
The product is being sold as a pooled investment option that will pay out a set income which steadily rises as other members within the same age cohort die.
A member receiving an income at 65 relating to the return from an initial $100,000 investment is projected to see this income steadily rise to the income one would expect from a $400,000 investment at age 100.
Dr David Knox, senior partner at Mercer, who is the chief architect of the product, said he was not aware of a similar product anywhere else in the world and that it was Mercer’s intention to launch it in other countries after its Australian launch. Mercer is seeking patents for the product in all major retirement markets.
The Mercer Master Trust, Vic Super and Media Super are all in early preparations to offer LifetimePlus from February or March next year.
To show their backing for the product, Michael Dundon, chief executive of VicSuper and Graeme Russell, chief executive of Media Super, were both at the launch of LifetimePlus at Mercer’s offices in Sydney yesterday.
Russell said he had been going to conferences for years hoping to hear of a product as innovative as LifetimePlus.
“As a not for profit fund we like the idea of a mutual pool. It is simple and good value for money. One of the things member will like about it is that they are in control.”
He added the fund hesitated to recommend traditional annuities to members as they were expensive.
Dundon described LifetimePlus as a practical and sensible solution and indicated it was likely to be one of a range of solutions made available to VicSuper members for the first time early next year.
VicSuper is increasing choice to retirees in recognition that 50 per cent of its assets now belong to members over the age of 55.
At the launch it was explained that Mercer anticipates that members will put a quarter of their retirement balance into LifetimePlus.
- As a pooled investment product there are no income guarantees from Mercer and theoretically income could fall depending on investment performance.
- LifetimePlus will invest in cash term deposits and a low risk absolute return fund.
- Allows customers to access up to 95 per cent of capital up to the age of 75 years, in doing so they forfeit 5 per cent of their investment.
- Delivers quarterly investment returns to investors and capital returns after 15 years.
- Mercer predicts a customer who invests $100,000 from a $400,000 super balance could expect up to $10,000 pa above the age pension after their super runs out.
- Allows member to stay within superannuation fund for administration purposes.
- Mercer is offering the product to institutional clients first and to the retail market later.