Mercer is to launch a group self-annuitisation product into the Australian market next week.
The full details have not yet been disclosed, but those close to its inception have described it as a game-changing product with two prominent funds linked to it.
What is known is that Mercer will pool retirees in an investment strategy which will pay out a variable income dependent on mortality rates in the pool.
If mortality within a cohort is high then payouts to retirees will rise. The lack of a cast-iron guarantee means the product does not need an insurance licence and to have contingent assets to back the guarantee.
The move coincides with heightened activity in response to a growing amount of funds under management heading into the retirement phase for many superannuation funds.
Another provider looking to move into this space is NAB, which is shortly to launch its MasterKey investment protection product for those over 50 to the broader market.
NAB has so far built up $330m in this product with 1000 clients introduced to it through advisers.
This product gives the flexibility of lump sum drawdown and growth assets, with layers of insurance protection that can be tailored and adjusted according to taste.
This insurance can either protect against capital losses or guarantee regular income streams.
Andrew Barnett, general manager of retirement at NAB Solutions at NAB Wealth, said he sees $330 million raised so far as small compared to the potential in the market.
“Our understanding of how to deal with longevity risk is quite underdeveloped. We still do not understand insurance concepts in wealth management, we see them as expensive and complex, but this will change over the next 1-5 years.”
Such product launches are coinciding with the move of funds such as VicSuper to develop a suite of retirement choices for members that will include self-developed products and white-labelled products with insurance elements.
The fund currently has a single pension option for members that has around $2.5 billion in funds under management, but this figure will grow as more members with large balances enter retirement over the next few years.
Michael Dundon, chief executive of VicSuper, said: “We are looking to address the key risks in the retirement phase, helping people to find secure income stream and extending beyond just the allocated pension we currently have,” he said. “We are happy to look at a whole range of things.”