The last two years has seen the emergence of a new category of lifetime annuity. Five providers have now launched lifetime income stream products that are investment-linked. This new era of lifetime income streams offer more income, more choice and more flexibility.
In 2017, the Government passed a series of amendments to a number of regulations, including the Superannuation Industry Supervision Regulations and the Income Tax Assessment Regulations, to enable life insurers and superannuation funds to “provide flexibility in the design of income stream products to meet consumer preferences while ensuring income is provided throughout retirement”¹.
Innovative Income Stream products that met the requirements of the new measures would enjoy the same tax concessions and social security concessions as “traditional lifetime annuities”. One key change was that lifetime annuities no longer had to guarantee the level of income or experience a reduction in income to enjoy these concessions.
Superannuation funds and life insurers have taken advantage of this legislation to offer innovative lifetime income streams with features and flexibility that were not possible under the old regime.
Combining a lifetime annuity with an account-based pension, and if eligible, the Age Pension is an optimal way to address inflation risk, market risk and longevity risk. The right combination can also optimise retirement outcomes and encourage retirees to spend retirement savings rather than save their retirement savings. This gives retirees the confidence to spend knowing they won’t run out of money.
Advisers now have a greater choice of lifetime income streams, many of which offer the potential for more income combined with more choice and flexibility.
Investment linked lifetime annuities - more income, more choice, more flexibility
A common feature of the new category of lifetime income stream products (collectively called lifetime annuities), is that they are investment or market linked. This means that the level of income paid can rise and fall from one year to the next to reflect the return of the underlying investment options. It is recognised that investment-lifetime annuities with the right investment portfolio can be expected to provide income streams in excess of inflation.
Another common feature of many of the new category of lifetime annuities is that they offer a feature known as an “income redistribution rate”. This feature brings forward income into the early years of the annuity in return for discounting future returns. Australian and global studies show that spending retirement declines over time and that retirees are able to and want to spend more in their earlier years of retirement. Lifetime annuities with income redistribution rates offer the ability to provide income streams that can meet these consumer preferences.
Investment-linked lifetime annuities that provide a choice of investment options and the ability to switch between those options also provide the adviser and their clients greater flexibility than traditional lifetime annuities. Traditional lifetime annuities offer clients stable income that either never changes or increases in line with CPI. The trade-off for this stability of income is that there is no ability to change the investment outcome to address changes in a client’s risk appetite or to react to changing market conditions. Investment-linked lifetime annuities also provide the real potential to deliver more cumulative income over the life of the consumer and, as indicated earlier, deliver income streams in excess of inflation.
LifeIncome – navigating retirement with confidence
Generation Life is proud to be shaping the retirement income landscape with LifeIncome, an investment linked lifetime annuity that was launched in 2022. LifeIncome is the only investment-linked lifetime annuity that offers the following combination of features:
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29 investment options managed by professional fund managers, with options ranging from active or passive single sector funds to diversified funds
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The ability to hold these options in any combination and switch between options at almost any time
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A choice of income redistribution rates, which we call LifeBooster
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The ability to purchase an annuity with non-superannuation or superannuation monies
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A choice of fortnightly or monthly income payments
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The ability to nominate a reversionary beneficiary to receive income when the policyholder passes away and to nominate a reversionary beneficiary other than a spouse when non-superannuation money is used
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The ability to elect to receive more income as a couple in return for reduced income when one of the couple passes away (called “LifeIncome Flex”)
“Generation Life is proud to offer an investment-linked lifetime annuity that provides such a unique combination of features following the government’s decision to foster more innovative retirement solutions,” says Patrick Clarke General Manager of Retirement Solutions at Generation Life. “The overarching goal of the rules was to provide income stream products to meet consumer preferences and that’s what we’ve aimed to deliver. Consumer preferences differ from one consumer to the next and it is important to have lifetime annuities that, when combined with an account-based pension in a tailored way, can meet these preferences.”
