Sales boom in retirement income streams

The retirement income streams industry is blooming. The value of its funds under management has soared over the past five years and its future looks just as bright as more baby boomers reach retirement age.

According to Plan for Life, the retirement income streams market had amassed funds under management of $28 billion by the end of June 1999, a jump of $5 billion or 22.2 per cent over the previous 12 months.

"A higher percentage of people are reaching retirement age than were in the past and their money has to go somewhere," says Plan for Life managing director Simon Solomon.

"Australians have traditionally been wedded to receiving a lump sum on retirement, but many are realising that retirement income streams may, perhaps, be a better option," he says.

He estimates that roughly 25-35 per cent of money received from superannuation funds are going into retirement income stream products. "That is not huge and the market has the potential to grow a lot more," he says.

Plan for Life expects the total annuities and pensions market to grow by between $7 billion and $8.25 billion in 1999 with sales averaging between $1.75 billion and $2.065 billion per quarter.

Solomon says the market could show growth of 10-20 per cent a year after that. "It could even double in size over the next four to five years," he says.

AMP, backed by its ready base of financial planners and traditional insurance agents, continues to dominate the retirement income streams market.

According to both Rice Kachor and Assirt's market share reports, AMP had funds of $3.2 billion under management at end-June, giving it a market share of over 12 per cent.

However, it appears that second place in the tables is being hotly contested by Commonwealth Financial Services and Westpac Banking Corporation.

Rice Kachor has Commonwealth slightly ahead of Westpac while Assirt's figures suggest that Westpac has usurped Commonwealth in terms of funds under management.

With the figures from both showing only marginal gaps, perhaps the more interesting trend is Westpac's impressive growth in this market.

Assirt says Westpac now has a 9.51 per cent slice of this market. It has funds under management of $2.37 billion, a jump from $2.2 billion in the March 1999 quarter and $2 billion in the quarter before that.

According to Plan for Life, Westpac also did best when it came to retirement income stream product sales in the second quarter of 1999, when it cornered $337.2 million or 16.1 per cent of the inflows.

It was also the top seller in 1998 when it could boast 18.6 per cent of all retirement income stream product sales.

Head of retail at Westpac Financial Services, Michael Migro, says his organisation views this market is a natural progression and decided to actively target it two years ago.

"We have purposefully upskilled the knowledge of our financial planners and we have actively grown our number of financial planners from 250 to 550," he says.

"We have also broadened our range of product skills and we have repacked and relaunched our annuity products. A third of our marketing budget is now spent on retirement income stream products," he adds.

Solomon notes that Westpac's rates also tend to be competitive and that it has made efficient use of its existing client base and network.

Also doing well in the second quarter sales stakes was Citicorp, when, according to Plan for Life, it sold the second most products, raking in $181 million (or 8.6 per cent of the inflows) and knocking AMP into third place.

Head of business development and sales Paul Vorbach says Citcorp's strength in this market is in short term and long term annuities, an area where it has grown its market share from 6 per cent in the fourth quarter of 1998 to 23.6 per cent at the end of June.

He attributes Citibank's success to its ability to offer a highly competitive rate without sacrificing security - and its ability to offer that rate consistently.

"I also believe that we have a fundamental advantage because we source all our assets from Citibank and this means we know what we will get and the quality," Vorbach says.

He adds that Citibank has spent much time educating advisers on the broader application of annuities and their competitiveness when compared to the term deposits of banks.

Another group that has soared up the retirement income streams tables is Colonial, no doubt helped along by its acquisitions of Prudential and Legal & General last year.

According to Rice Kachor, it jumped from 15th place to fourth at end-June with funds under management edging up from $645 million to $1.9 billion over the year and its market share rising from 2.9 per cent to 7.3 per cent.

Figures from Plan for Life show that in the year to June allocated pensions accounted for just over half of all the funds under management in the retirement income stream market.

During the year, this sector grew its funds under management by a whopping 38.6 per cent to $14.2 billion. Over the same period, funds under management for allocated annuities grew by 22.8 per cent to $4.6 billion.