The Australian financial services industry needs to pay more attention to the place of annuities in the de-accumulation phase of retirement cycle, according to the chief exectuive of a major funds management organisation.
"It's surprising that so much attention has been give the accumulation phase, but so little attention has been given to de-accumulation," Challenger Life chief executive Richard Howes told the Institute of Actuaries super policy forum held yesterday in Sydney.
He said that while products such as annuities were a core and staple part of overseas retirement system, the Australian system hadn't fully embraced such products
"The Australian financial services sector has forgotten a lot about the power of fixed income products," he said.
"Historically we get excited about equities but the global financial crisis has shown us that there are risks over the focus on growth assets."
As a result Howes said that there was a portfolio construction case for annuities.
"Modelling shows that by replacing the defensive component of a portfolio with annuity, you can reduce the problem of inadequacy," he said.
Watson Wyatt principal Nick Callil speaking at the same forum agreed that adding annuities to the portfolio mix was a worthwhile consideration.
He said that a mix of growth, defensive and annuities could be considered to guard against longevity risk. However he said that the pricing of the annuity and the part of the portfolio that the annuity replaced needed to be a consideration.
"The value of adding an annuity increases as the retiree lives longer," Callil said.
