Insured versus uninsured retirement products
Last year, APRA and ASIC issued a joint letter to superannuation fund trustees on implementing the retirement income covenant.
They reminded trustees that while the covenant does not explicitly require them to offer retirement income products, the regulators expect trustees to ensure their product offerings are suitable for the different cohorts of members approaching, and in retirement.
In our view, for a trustee to satisfy its covenant obligations, it needs to review the retirement product landscape to understand the options available. Only then can the trustee design suitable solutions for its members.
This knowledge is especially important when a trustee is making decisions about helping its members to manage the specific risks listed in the covenant, including longevity risk.
Several companies have launched new products in the last 12 months or so. These Innovative lifetime income products all help members manage their longevity risk by guaranteeing a lifetime income, no matter how long they live.
We can group these lifetime income products into two broad categories: self-insured pools or group self-annuities and insured pooled products such as investment-linked annuities.
To help trustees understand the difference between insured and uninsured approaches, we have produced a white paper that includes the pros and cons of each approach.