Annuities take on a growth spurt

Fund managers have been facing an uphill battle in getting investors to recognise the attractiveness of annuity products that include growth assets.

Fund managers have been facing an uphill battle in getting investors to recognise the attractiveness of annuity products that include growth assets.

The latest product on the market is the Enhanced Income Annuity, released by Mercantile Mutual in June this year.

This product gives investors access to growth investments such as property and shares while providing a guaranteed income stream indexed according to the per-formance of the Mercantile Mutual Annuity and Pension Capital Guaranteed Fund.

Most importantly, the product complies for pension reasonable benefit limit (RBL) and social security purposes.

General manager of retail funds management at Mercantile Mutual Paul Bedbrook says the market has responded with cautious optimism to the product.

“We’ve had great interest but modest actual action,” Bedbrook says. However, he remains confident the market will embrace it. “Over the long term it will be a popular product.”

The Enhanced Income Annuity comprises 35 per cent growth investment and 65 per cent fixed income and cash. Subsequently, while it will not earn the return of a managed fund, Bedbrook says, it will perform better than traditionally modest fixed interest-based annuities.

AM Corporation’s manager of adviser technical services Phil La Greca says the key issue when it comes to annuity products which include growth assets is an educational one.

Last year AM offered its Flexible Pension product which also allowed access to growth investments.

“There’s nothing really wrong with the products. The problem, though, will be ex-plaining the products to advisers and clients,” La Greca says.

He believes that while including a growth component in annuities will result in greater flexibility to the investor (and possible higher returns), these new products will need more monitoring than other annuities.

Financial planners, La Greca says, will most probably have to carry most of this extra burden. “And if there’s regular monitoring work, clients need to realise they have to pay their adviser to do this extra work,” he says.

According to BT Funds Management’s vice president of product development Brian Bissaker, however, the problem still lies with the restrictions on the flexibil-ity of including growth assets in all retirement income streams products. And, he says, this in an area that industry players continue to lobby the government over.