Are low interest rates sinking the annuities boat?

Annuities and similar products represent a core theme within the Government’s upcoming retirement income review but the question for advisers is how do you recommend such products in a zero or persistent low interest rate environment?

Despite this question mark, Australia’s largest annuities player, Challenger this week had little trouble completing a fully underwritten $270 million placement, stating it had received significant interest from both offshore and domestic institutional investors.

However, the Challenger share price has taken a hit in recent months and the company has acknowledged that recovery is an issue for 2021.

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SMSF Association chief executive, John Maroney is amongst those who acknowledge that annuities have, for the time being, lost some of the key elements which made them attractive to self-funded retirees – returns of between 4% to 5% above the baseline.

“Right now, you’d be starting off virtually a zero base and having to consume capital and that is not what retirees are looking for,” he said.

The discussion around annuities is expected to be advanced by the release within weeks of the final report of the Government’s Retirement Income Review panel.

Annuities and where they sit in an adviser’s arsenal for retirees will also be discussed at Money Management’s Retirement Incomes webinar on 15 July involving Australia’s major annuities players – Challenger, AMP Limited and AllianzRetire Plus.

The panel will also be joined by Maroney.

Readers can sign up for the free webinar here:

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