Retirement patterns set to spark new products

Financial providers will need to consider the development of new products for consumers aged 50 plus, according to Mercer Oliver Wyman in the UK, which has conducted new research identifying four distinct life stages in this age range.

The four main categories are made up of retirement preparation, usually involving people aged between 50 and 65 shifting their investment focus to short-term retirement funding.

The next is transition, where people in their late 50s to mid-70s move from active work into retirement.

The third category is active retirement, incorporating people pursuing leisure life with high financial expenditure between the ages of 66 and 85.

Finally, passive retirement consists of people over 75 years of age requiring more care and support in their daily lives.

“Retirement preparation is obviously where a lot of companies have been focusing and, relative to most other countries, the quality and style of advice in Australia that individuals are getting in that phase is actually quite strong,” Mercer Oliver Wyman director Anthony Bice said.

While fund managers in the domestic market are looking after this category of the 50-plus market well, Bice felt there were noticeable gaps in servicing the transition and active retirement groups.

“Australian retirees are very much at the mercy of their own investment capabilities and those of their advisers. At the moment, there’s no real market in Australia that provides any kind of underlying guaranteed lifetime income, apart from relying on the government when your funds run out,” he explained.

As such, he believed fund managers will have to begin introducing more products that offer consumers the benefits of all of the upside of the investment, while guaranteeing them a minimum stream of income able to be drawn down from the original capital outlay, a trend already witnessed in the US.

“As a product, that is not necessarily that new, but the new element of it is that they have explicit charges now for all of these different guarantees. So, potentially, there’s quite a long menu of different guarantee structures, different income structures and so on, and each one has a price,” Bice said.

“The fund manager charges what is a fair price for that, and then goes away and does all of the risk management themselves. So the customer is left with a potential income stream plus some kind of underlying guarantee that’s not going to be affected by adverse market movements,” he added.

In addressing this need in the market, Bice said fund managers would have to consider whether they want to service all of the life stages for the over-50 age group, or just concentrate on a few specific ones.

Drawing from overseas experience to date, he predicted the larger managers would be likely to target all phases, with the smaller ones taking a more specialised approach.