Longevity risk drives new retirement products

The solution to longevity risk in retirement is a ‘difficult nut to crack’ for product providers, and advisers need to step up their game and provide advice around less traditional options for steady income streams, according to Mercer.

While annuities offer income protection, Mercer Pacific director of commercialisation, Ric Lamont said the high embedded costs and low rates of return had seen strong demand for new products in the market to better meet the needs of Australians who expect to live for 25-35 years after retirement.

“Fifty per cent of retirees are likely to outlive their savings by more than five years – and 25 per cent are expected to outlive their savings by 11 years, so a strategic plan to maintain client income deep into retirement has never been more important,” he said.

“The reality of longevity risk has become apparent and as a result, it is now high on the agenda of policy-makers.”

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Lamont said the 2014 Financial System Inquiry had highlighted a need for the government to better address longevity risk in isolation, and that advisers were in a unique position to educate clients around it.

“As clients approach retirement age, financial advisers must start taking a more proactive approach and put in place the solutions that will help individuals in potentially 30 years’ time,” he said.

Mercer senior partner and chief architect of retirement solution product LifeTimePlus said post-retirement products should help individuals draw an income from their savings.

“With the 100-year life being a reality for many people retiring today, financial advisers have a golden opportunity,” he said.

“[Advisers] can help clients plan for a retirement that could last well over a quarter of a century.”