Planners showing increasing interest in annuitisations for clients
Financial planners are showing increased interest in staggered annuitisation products as they help clients prepare for uncertain retirements in a time of increasing maximum probable life expectancies, according to CommInsure.
According to CommInsure head of annuities and investment bonds, George Lytas, the firm had experienced in uptake in use of annuitisation products. Financial planners had also shown growing interest in utilising annuitisation to help clients safeguard their retirements.
To respond to this need, Professor David Babbel of the Wharton School at the University of Pennsylvania, who is helping CommInsure create a flexible approach to annuitisation, was giving a series of talks. His speeches to the Financial Planning Association has sold out.
Babbel said that the major challenges in managing retirement included increased longevity, uncertainty around lifetime, and inflation and interest rate uncertainty.
He said that staggered annuitisation was an effective means of managing retirement finances to mitigate these risks.
The staggered approach would see investors cash out short-term annuities to buy lifetime income ones as they moved through the retirement phase, which Babbel said was “a fresh strategy that shows the effect of using short term and lifetime annuities together to manage retirement income over the long term.”
Babble recommended a ‘four-bucket’ approach, in which clients would spread their annuities across four types. They would have an immediate income annuity bucket, a deferred income one, which they could turn on later in retirement, a rainy-day bucket containing a term certain annuity, and then a final option ‘early inheritance’ bucket for gifting.
Furthermore, Babbel said that major concerns about annuitisations could be controlled or minimised in Australia.
The biggest issue with fixed annuities, according to Babbel, is the impact of inflation on the buying value of the funds invested in them. This could be solved two ways; through inflation-indexed annuities (which are offered by both CommInsure and Challenger in Australia) or through staggered annuitisation.
Traditional reservations about annuitisations in terms of default risk are also less concerning in Australia than abroad, as there is stricter insurance regulation to minimise such threats.
AUTHOR
Hannah Wootton
Recommended for you
With an advice M&A deal taking around six months to enact, two experts have shared their tips on how buyers and sellers can avoid “deal fatigue” and prevent potential deals from collapsing.
Several financial advisers have been shortlisted in the ninth annual Women in Finance Awards 2025, to be held on 14 November.
Digital advice tools are on the rise, but licensees will need to ensure they still meet adviser obligations or potentially risk a class action if clients lose money from a rogue algorithm.
Shaw and Partners has merged with Sydney wealth manager Kennedy Partners Wealth, while Ord Minnett has hired a private wealth adviser from Morgan Stanley.
