There is an increasing trend for investors, retirees and their advisers to protect against longevity risk by shifting their annuity focus to retaining wealth rather than chasing capital gains.
Investment Trends found in its latest ‘December 2011 Retirement Planner report’ that the proportion of planners seeing maximising capital growth as the top priority for annuities has diminished from 77 per cent to 1 per cent for retirees.
Instead, planners have increased priority to maximising income (from 3 per cent to 48 per cent), and focus on minimising risk (from 4 per cent to 33 per cent).
Investment Trends senior analyst Recep Peker cites volatility in the market for the shift.
“Level of concern has remained constantly high – sentiment had began to recover this year, but fear levels spiked again in May,” Peker told InvestorDaily.
“Investors are also quite worried about the situation in highly indebted countries, with 66 per cent agreeing that they will trigger a second wave of the GFC.”
As a result, annuities are enjoying a resurgence in the market with good growth, he explained.
CommInsure general manager of super and investments Greg Ballard also notes that advisers are placing more focus on ensuring their clients have enough money to last as long as they do.
He explained that using annuities as part of a well constructed balanced portfolio can give a base level of income to cover daily expenses.
“The popularity of annuities in Australia is increasing with more investors looking for certainty from their investments,” Ballard told InvestorDaily.
“Having a guaranteed income base reduces the need to draw down other capital, giving those assets time to recover losses and for investment in growth assets.”
He said that the focus on retaining wealth in annuities will allow investors to participate when markets recover to boost their retirement outcome.
Challenger chief executive of Life Richard Howes also agreed that there is a trend for advisers to reprioritise annuities with an increased focus on income certainty.
“We are not seeing that advisers are forgetting about wealth accumulation or creation, instead what we are seeing is a reprioritisation of things,” Howes told InvestorDaily.
“We’re seeing a layered approach where advisers first say ‘I must ensure my client can meet his basic living needs under all circumstances, then on top of that I can use the balance of the assets to chase more aspirational outcomes'”.
