Reinventing annuities for today’s retirees

Patrick Clarke, Generation Life’s General Manager of Retirement Solutions explores the development of our LifeIncome product, delving into the changing perception of lifetime annuities and how Generation Life has innovated lifetime annuities for today’s retirees to provide more choice, more certainty, more flexibility and more income.

The new era of lifetime annuities

There’s never been more Australians entering retirement than right now. Due to the complexities and uncertainties of retirement, there’s also never been a greater need for sound financial advice offering retirees financial freedom in retirement.

As more Australians move into the retirement income system, the need for a wider range of lifetime income choices becomes more pressing. Fortunately for Australian retirees, legislative reform introduced in 2017 now means there is more flexibility in how people can choose to annuitise their retirement incomes.

At Generation Life, we strongly believe all retirees should have the ability to retire with confidence and live the lifestyle they desire without the traditional retirement concerns like longevity and sequency risk.

Introducing LifeIncome

To combat these concerns, we are proud to have introduced a new first-of-its-kind, lifetime annuity product to the market—LifeIncome providing a guaranteed but variable income with the potential for higher overall returns and therefore, higher income payments compared to traditional lifetime annuities.

LifeIncome is designed to optimise retirement income and complement other solutions such as an account-based pension and superannuation. It is an innovative, lifetime annuity solution which offers advisers the ability to provide a return on their client’s investment with the flexibility they need to tailor their investment to their client’s changing needs and risk profiles.

The creation process

A specialised Retirement Solutions team was created to bring LifeIncome to the Australian market. The idea was prototyped and tested with advisers and retirees. We conducted a series of focus groups throughout the journey to develop and refine the initial concept to ensure LifeIncome addressed Australian retirees’ needs.

The most critical component of our product development process was seeking feedback from advisers and clients. There’s no point building something that no-one wants or won’t solve their current retirement concerns. We sought feedback on all elements of the product design, but we also sought feedback on how to explain our core features and benefits.

There were pre-conceptions that people had about lifetime annuities that we needed to overcome. One such belief was that if you put money in a lifetime annuity and you pass away after three months, your dependants get nothing back. The good news is no-one offers lifetime annuities that don’t offer the option of a death benefit anymore.

Equally important is emphasising that a lifetime income stream is not the whole solution. A lifetime income solution complements an account-based pension – and so explaining how the two solutions can work together and can help many people get some or more of the age pension is critical. The feedback from advisers and their clients on how best to explain this retirement jigsaw puzzle guided our initial product communications with advisers.

What sets LifeIncome apart from other products?

We know that every retiree has different needs, attitudes and lifestyle goals. The cliché when looking at the retirement income space is that no two retirees are the same – but it is true!

Advisers and their clients need flexible solutions with optional features that can be used in some cases and not in others. Some clients can handle some volatility in income – others can’t, so having an investment menu that offers a range of investment options is important. The ability to switch investment options is just as important. Markets change, attitudes and appetites to risk change or the client may come into more money.

We offer different income redistribution rates, which can be combined with different income portfolios to suit different customer personas. Even a simple thing like offering the choice of fortnightly or monthly income payments is important and valued.

Our innovative lifetime annuity was the first to offer the following combination of features:

• An independent choice of 23 investment options managed by professional fund managers

• An income stream linked to the performance of investment options chosen by retirees

• The ability to switch between any combination of these investment options

• A choice of payment both monthly and fortnightly frequencies

• A choice of different LifeBooster rates, which enables income to be redistributed at different rates depending on a client’s needs.

Customer benefits

We know that retirement is an emotional journey and not just a financial decision. It can be an overwhelming period where clients feel anxiety about the future and the loss of self-purpose. They are no longer working and have lost the financial stability of a regular income too.

Accompanying this are often real concerns about inflation, economic volatility, investment performance and longevity risk – the risk of outliving their retirement savings. By allocating a part of their retirement savings into LifeIncome, retirees can avoid worrying about:

• their account-based pension,

• market correction that may erode their capital or

• being overly conservative, limiting their ability to grow or maintain income.

LifeIncome provides investment choice, flexibility, and more income in the early years of retirement which aligns to actual spending patterns. LifeIncome will also increase Age Pension and social security benefits for a large number of retirees.

Since the inception of LifeIncome, financial advisers have been extremely pleased to see innovation in this space. Solving for longevity risk has always been recognised as a challenge, but advisers and clients have had to give up too much with traditional lifetime annuities to really embrace them. The ability to influence the investment outcome of an investment-linked lifetime annuity over the life of the investment means that the adviser can respond to the changing needs of the client over time. Financial Advisers are also embracing the concept of income redistribution rates, that bring more income forward into the earlier years of retirement.