Retirement 12/10 – Jockeying for position with retirement funds

While an ever increasing part of the workforce looks towards retiring, the funds flowing into retirement income products remains strong.Jason Spitsexamines where the money went and who proved attractive to investors over the last 12 months.

Anyone doubting the sincerity of successive governments trying to encourage Australians into saving and self funding their retirement will be heartened by yet another round of research figures.

Research house Assirt recently released its quarterly market share report for June, which took a look at the retirement product market for the quarter and the fiscal year.

And while the calls for greater savings for retirement continue to gain momentum due to concern over savings for long term retirement income, the news is not all bad.

Allocated pensions and annuities continued to see positive growth in the retirement income streams market tipping the scales at $29 billion, up by 16 per cent, from nearly $25 billion at the same time last year.

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However total funds flow over the past 12 months did post a lesser figure than last year with inflows reaching $3 billion, down 20 per cent on last years figures of $3.7 billion.

These figures are set to climb for some time according to Assirt information system manager Anthony Serhan who says the ageing the workforce guarantees this occurring.

"Taking a broad brush approach to the landscape of retirement income the obvious issue is the superannuation pot will continue to get bigger as more baby boomers get set to retire," Serhan says.

"As such it would be obvious to expect flows to increase into most retirement income vehicles from a purely demographic standpoint."

And it has been these changes which have fuelled the growth of allocated pensions and annuities. Retirees have few options for generating long term, tax effective income streams after taking eligible termination payments (ETP) as a lump sum.

Those planning on holding the lump sum or using it in some form of unit trust will be means tested on those funds, thus jeopardising the level of any pension they may receive. An allocated pension or annuity removes that issue and, as stated elsewhere in this feature, gives recent retirees regular income akin to the pre-retirement pay packet.

According to the Assirt data AMP has once again led the way in providing these products to retirees taking out the top position in terms of market share at 16 per cent, or about $4.6 billion.

This represents a firming of AMP's top spot after claiming it also in 1999 with $3.2 billion, nearly 13 per cent of the market, however the inclusion of GIO funds was partially responsible, injecting almost a $1 billion of assets over the June quarter.

AMP marketing and communications manager Mike Smith says AMP has always held a solid position in the allocated pension and annuities market but attributes the recent results to a greater distribution push through advisers.

"There has been a fair bit of success lately with our products making inroads into the independent adviser market, with its inclusion on recommended lists," Smith says.

"This has been underpinned by some of the product characteristics such as a range of fund manager and investment choices as well as generally good performance for AMP."

While the top position remained unchanged the tussle for second and third saw new stars rising to the fore.

The combined strengths of the National and MLC gave the merged group second place in market share at 13 per cent but still some way back in assets under management, at $3.7 billion.

Serhan says this move into the silver medal position is important because in past Assirt figures neither group has registered in the top five and the inclusion of the groups under a single figure was a conscious decision.

"After consultation with the managers at the combined group we felt that the National and MLC group was pursuing an aggressive integration strategy which meant we would treat them as one in the statistics," Serhan says.

"This is compared to the Commonwealth and Colonial First State where we felt there were seperate marketing strategies in place and an effort to continue to build both brands with different styles."

However this approach resulted in the Commonwealth holding its third placing from last year yet expanding market share from 9.4 to 10 per cent.

Westpac, which has usually contended with the Commonwealth for either second or third came in fourth, pushed down by the newcomers, with market share reduced by less than half a per cent.

However the big losers in the scramble for market share was those remaining 26 funds outside the top five which this year accounted for only 44 per cent of the market, down from 52 per cent at the same time 12 months ago.

But as the allocated pension and annuity market changes Serhan says it will become harder to track the changes as options for retirement income also open up.

"More people are choosing to use do-it-yourself (DIY) funds that actually offer an allocated pension or annuity strand and that may begin to bite into this market," Serhan says.

"As the industry expands then it will become harder to track the retirement dollars but in the area of DIY funds they will be overseen by the tax office and these funds could be a factor to consider in the future. Whether those funds are in use by retirees or accumulators, who can tell, except that it will become harder to draw conclusions."

Top 5 Managers in retail allocated pensions and annuities at end of June 1999 and 2000

Fund Manager Rank - 2000/1999 FUM - $M2000 FUM - $M 1999 Market Share (%) 2000 Market Share (%) 1999

AMP 1/1 4,668.45 3216.12 16.09 12.89

National / MLC 2/- 3,770.83 - 13.00 -

Commonwealth Financial Services 3/3 2,904.32 2351.03 10.01 9.42

Westpac Financial Services 4/2 2,633.96 2373.97 9.08 9.51

Mercantile Mutual Life 5/4 2,453.39 2055.57 8.27 8.24

Assets and funds flow for end of June 1999 and 2000.

2000 1999 Percentage change

Total assets - $M 29,012.46 24,950.22 16

Total funds flow year - $M 3,031.87 3772.33 -20