Energy Super and Mercer have developed an account-based pension investment option that combines an investment strategy focused on capital preservation with a longevity-risk pool.
The product will be available to members from July 1 and features three income streams, one of which is a ‘living bonus’ paid to eligible members every half year they live after reaching 75 years old.
“It is essentially the first group self-annuitised product in the Australian market. It is something the government has indicated in their latest budget they are highly supportive of, and we fully expect when legislation is tabled and passed later next year, this will be something the industry is paying a lot of attention to,” said Ben Walsh, Mercer’s managing director and Pacific market leader.
Walsh added that the design of the product relies on the establishment of a mortality pool so it can provide a living bonus from age 75.
Mercer’s PDS explains that the living bonus pool accumulates from deductions made from investors who exit either through death or through deciding to withdraw their money from the product.
“Obviously the living bonus depends on how many other survivors are in the pool. So if, as a global world, we cure cancer and everybody lives to be 115, 120 or a 130 then the living bonus will still be paid but there will be a lot more people in line for it,” said Walsh.
He added that Energy Super and Mercer were trying to achieve an investment option that would continue to provide some sort of return, even if a member’s original capital had been extinguished.
For investment earnings paid every quarter – one of the other income streams – Energy Super LifetimePlus uses a conservative investment, targeting a return that is 1 per cent above the cash rate before fees.
The final income stream is from capital repayments, and is equal to 2.5 per cent per annum of the initial invested capital, once the member has been an investor for at least 15 years and has passed their 75th birthday. The capital return is paid for up to 20 years.
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“The development of this product with Mercer is the result of more than two years’ research and investigation into how we can help members to better protect their financial futures in the face of growing longevity risk,” said Robyn Petrou, chief executive of Energy Super.
“Energy Super LifetimePlus allows members to not only protect themselves from outliving their savings, but also plan with greater confidence and control their account-based pension in one place through their super fund.”