Challenger Financial Services Group sold a record $90 million-plus of annuities in August as retirees sought stable income amid stock and bond market volatility.
“Clients want certainty and simplicity and are attracted by the high return, low-fee proposition that annuities represent,” Challenger general manager of distribution Matt Gaden said.
“Those things are becoming more important to retirement income portfolio construction and hence advisers and clients are turning to annuities.”
Challenger Life Company is the largest provider of retail annuities in Australia with approximately $5.8 billion in assets under management and 60,000 policy holders, Challenger said in its profit results for the year to 30 June 2009.
It wrote $514 million worth of annuities in the same period.
The $1.3 billion Axa annuity book transfer in November 2008 provided long term fixed cost funding around bank bill swap rate, increased customer base and a widening franchise, Challenger said in the results.
Annuities provide a guaranteed income stream for a period generally between one to 30 years. Payments can be indexed to the consumer price index, shielding funds from inflation.
Nearly all of Challenger’s annuities have been sold through adviser channels, Gaden said.
Most of the annuities Challenger sold this year mature in three to five years time, which is a major shift away from one to two year terms that clients sought in 2007/08, he said.
“We are clearly seeing a shift towards longer terms,” Gaden said.
Governments should encourage retirees to take out annuities, an Organisation for Economic Co-operation and Development (OECD) report titled ‘Pensions at a Glance 2009’ argued.
“Most Australians continue to take out pensions as lump sums and invest the funds or as income streams. Both of these can leave the value of their retirement assets vulnerable to financial-market turmoil,” the report said.
Australia’s superannuation funds slumped 26.7 per cent in 2008, the second worst investment performance for private pensions in 30 OECD countries, suffering particularly because of large equities exposure, it said.
More than one in four Australian seniors live in poverty on international measures, the report said.
