Will your clients outlive their superannuation?

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With more than four million Australians expected to retire within the next decade, MTAA Super chair John Brumby said there was a shift in priorities for financial advisers and their clients. He said people were not only worrying about out-living their pension, but that another crash like the Global Financial Crisis could “literally smash peoples’ retirement plans”.

“People are switching their focus from basic wealth creation to actual retirement management,” said Brumby.

MTAA Super, in conjunction with MetLife Australia has developed a guaranteed income for life product, which is payable as a pension for the entirety of clients’ retirement years – even after their account balance reduces to zero. Brumby said, as far as he knows, it is the first product of its kind in the market, but more competition wouldn’t be a bad thing.

“We believe there’s a real gap in the superannuation industry for a product like this, so if others follow I think that’ll be a good thing for the industry and a good thing for superannuants… for a lot of people it’s exactly what they want and it’ll give them that security without watching the stock market every day and every hour, or wandering whether they’re going to live too long.” MTAA Super RetireSafe is open to all Australians aged 60 and over with a superannuation account balance of $50,000 or greater. Brumby says retirees can put half, three quarters, or all of their balance into the product.

MGD Wealth director Stephen Furness says longevity risk is definitely a huge issue with retirement clients, but he struggles with the possible cost of these insurance products.

“We’d rather talk to clients about self-insuring within their portfolio strategy in terms of sensible allocations of capital and making sure they’re aware of how much capital is needed to fund various requirements…we set aside their own capital rather than one of these capital protection things,” he says.

“It’s just the law of averages; for everyone that lives twenty years there’s someone who hasn’t and someone who’s going to live longer, so it’s quite a difficult thing to get right.”

He admits that there are some clients that can’t afford to self-insure, but says that if people are spending too much for their portfolio to support then the first thing they need to do is assess what they should be spending rather than looking for another solution.

MTAA Super charges four types of fees:

  • Guarantee premium - Paid to MetLife, accrued daily and taken out of your pension at the time a pension payment is made.
  • Expense recovery costs - Pays for administration costs such as sales and marketing activities.
  • Investment management fees - Based on a percentage of the account balance.
  • Underlying investment fees - Charged by a third party fund manager, based on a percentage of the account balance.

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