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Retirement product innovation around annuities, guaranteed products and ‘life stage’ products will continue as advisers and their clients increasingly demand better post-retirement solutions.
Wade Matterson, Sydney-based practice leader of actuarial firm Milliman, said the product development around variable annuities would continue, but product providers were also looking to guaranteed products as well as products that are readdressing the ‘life cycle’ approach.
“The variable annuities space has been quite active, coming out of the insurance companies,” he said. “But the fundamental thing is that the product solutions will have more of a focus on managing risk rather than just simply managing money. How you do that and the sorts of structures that come through will vary.”
Matterson continued: “We’ll see more guaranteed products, whether they’re guaranteeing income or assets, continue to develop. We’ll also start to see strategies that don’t necessarily provide a guarantee but offer protection, like an enhancement to the life cycle or life stage investing approach.”
Matterson said that in the recent past the life stage approach, which sought to manage risk by gradually moving older investors away from growth assets, had done a very poor job of managing risk.
“However, the concept of that strategy is a good one, and we’ll see the way that people implement that strategy will be quite different — they will look at building into portfolio construction assets that are specifically designed to help manage you from downside risk. In the event when markets do go through a period of poor returns, that portfolio will be supported by those assets.”
Matterson supported the Government decision to shelve the Henry Review recommendation of mandating a post-retirement solution, but he felt that any one solution would be a mistake because there is no one solution suitable for everyone in every situation.
“People have different needs in retirement and different resources, so it’s really about coming up with a variety of solutions that help people pick the right strategies for them,” he said.
Matterson said that there was enough innovation happening at the moment to give people choice, but he added that this was only the beginning.
“We’re only at the very start of the wave,” he said. “The baby boomers are still approaching retirement — they’re not all there and we still have time. What you’re seeing now is the very early innovations around this and we are going to continue to see innovation accelerate, creating a wider range of products and strategies.”
