North protected retirement guarantee rated 'strong'

Standard and Poor’s Fund Services (S&P) has rated the North Protected Retirement Guarantee (PRG) as ‘strong’, despite concerns about guaranteed minimum withdrawal benefit (GMWB) for life products in general.

S&P Fund Services analyst Rodney Lay pointed to the product’s flexibility, choice of underlying funds, low underlying fund management fees and higher risk/return strategies, stating that North’s PRG was the superior GMWB for life product in the market.

However S&P has concerns about all guaranteed minimum withdrawal benefit for life because they do not provide a guarantee against inflation risk, with real income expected to decline over the longer term, he said.

“Furthermore, the likelihood that income payments will increase is subject to significant market-timing risks, with flat, weak or volatile market performance in the earlier stages of the investment greatly reducing the likelihood of income increases,” Lay said.

Overall the North Protected Retirement Guarantee is effective in providing retirees with nominal income certainty, partly to address income sequencing, longevity, and market risks, he said. It is best suited to those in good health, with a family history of longevity, and who are concerned about outliving their income as the total return on a lifetime annuity increases the longer the investor lives, he added.