Annuities have a reputation. They’re often viewed as expensive, illiquid and without death benefits, and the people who need them most are often the ones least interested in buying them.
“I’ve banned the word ‘annuity’ from the floor,” NGS Super CEO Natalie Previtera tells Retirement Magazine. “You say the ‘A word’ and people just don’t understand.”
What members do understand are the words “guaranteed income”, Previtera says, and that’s what NGS wants to give them with a group annuity from Challenger, which will be accessible both inside and outside the fund’s existing retirement product, Easy Default.
“We know that longevity has a role to play, and we really want to provide our members with some more optionality around how they manage that into the future,” Previtera says.
“We’ve got some great products, which are simple products, on our menu; we believe that simplicity is key but we know that behaviourally some members, whether they need the additional money or not, it’ll play a really important role in delivering peace of mind.”
NGS manages $16 billion on behalf of 110,000 members. Pick one at random and they’re likely to be a 47-year-old woman, not quite at retirement, but heading towards one of the milestones – like the age of 50 – where super suddenly becomes much more important.
“We’ve got a lot of human contact with our members,” Previtera says.
“We listen, and create products based on the need. We aren’t the big end of town, so it’s easy enough for us to get our hands around the needs of the membership.”
And what they need – or what they think they need, which is just as important – is income.
“There will be some members for who, based on their balance, the aged pension will be adequate as an additional longevity tool. And there will be some members whose savings will take them into their 90s quite easily. But behaviourally they need that peace of mind, and that’s what the partnership with Challenger does.
“The option, if members want it from a balance perspective or a peace of mind perspective, is there.”
Australia’s annuity market is now much more developed than it was just 10 years ago, and Previtera says in the competitive tender process NGS ran the fund was “spoilt for choice”.
“We had some quite specific needs,” she says.
“What I mean in that is that we were very clear that we wanted to run with a guaranteed income product. That comes down to that ethos of just keeping it quite simple and being clear about what we were trying to do for our membership.”
The question of behaviour and confidence also helped NGS build its default retirement product, Easy Default, which combines a cash bucket containing two years of income with the Retire Plus investment option, which invests for higher levels of income and capital growth. Recognising that members weren’t taking out as much as they could, NGS set the drawdown for that cash bucket higher than the minimum drawdown (members can, of course, lower it). When the group annuity comes online, it will be available both inside and outside the framework of Easy Default.
“We recognised that it’s a confidence thing for members. This comes through all the advice we’re giving – whether that’s general, comprehensive or intrafund advice – and we’re trying to replicate the peace of mind… They walk out of those advice meetings with quite a bit of confidence; what can we do to replicate the experience on a DIY basis?”
NGS also embeds retirement sufficiency scores based on the ASFA comfortable standard (an annual income of $73,077 for a couple or $51,805 for an individual between the ages of 65-84) into how it tracks its success across the fund rather than just paying attention to cost ratios and performance.
“We’ve got members of all different ages, but what we’re really managing for is their retirement. For the average member it’s just around the corner. It’s engrained in our culture and everything we do.”
“We’re thinking about what members are needing as they lean into retirement. While we’re here to build those balances and encourage members to take those steps they need to take, we really set ourselves up to be here for that cohort that really want to engage with us in that pre-retirement section and beyond.”
