Asteron has launched a new product aimed at delivering an extended income stream for retirees whose life expectancy exceeds the original projections made by most conventional annuity arrangements.
Called the Asteron Longevity Income Stream (ALIS) the product looks to complement existing retirement saving strategies, such as allocated pensions. It does this by providing investors with an income stream triggered after the age of 85, the existing average life expectancy of a male when income flows from conventional annuity products are designed to run out.
Asteron chief operating officer retail John Crosswell said: “The Asteron Longevity Income Stream is an Australian first and is the only retirement income product that really efficiently deals with the individual risk of living too long.”
To take advantage of the ALIS retirees are encouraged to contribute 10 to 20 per cent of the funds they would normally place in an allocated pension product.
“The ALIS is invested until a conversion age and does not pay an income in that initial period. It generates a second income stream from the conversion age, say 80 to 85, for the remainder of the life of the retiree regardless of how long that is,” Crosswell explained.
The underlying manager for the product is Vanguard and retirees are provided with a choice of three diversified investment portfolios in which to place their initial allocated funds.
The product specifies that retirees must commit to an investment period of at least 15 years.
In addition to the returns delivered by the Vanguard portfolios, the ALIS provides retirees with a unique feature called a longevity boost.
“The way this works is the investor joins a pool of all the retirees who invest in this product. That pool shares mortality risk. Investors who live beyond conversion age receive a proportion of the pool’s investment return on top of their individual return. Based on our projections of mortality this feature should create an additional return of 1.5 to 2 per cent,” Crosswell said.
The launch of the ALIS comes on the back of Australian Bureau of Statistics figures that show in 2005, 65 per cent of women and 51 per cent of men in the population aged 65 were expected to live beyond the age of 85, the group of people Asteron identified as Generation L.
“From an industry point of view we have no doubt this will open up a range of innovation as it needs to. There is a huge underlying market need here and this industry needs to continue to innovate to meet that need,” Crosswell said.
