(October 2007) Manulife upped the ante on its competitors in the guaranteed minimum withdrawal benefit market. The insurer has added a lifetime guarantee on payouts from its IncomePlus product line.
In October 2006, Manulife launched IncomePlus, the country’s first GMWB product, which is an add-on feature that can be purchased as part of a segregated fund arrangement. IncomePlus guaranteed monthly retirement income from the fund for 20 years, regardless of the performance of the underlying investment.
The company is now extending this guarantee for the rest of the investor’s life, starting on December 31 of the year in which the investor turns 65. No IncomePlus fees or fund management expense ratios will increase for extensions.
In GMWB’s first 10 months of operations, Manulife managed to sell over $2 billion worth of IncomePlus products. According to Moshe Milevsky, professor of finance at York University’s Schulich School of Business, the success highlighted the growing demand for investment products aimed at investors entering the last decade of life before retirement.
Milevsky calls this stage of investing the “retirement risk zone” because holding losses on accumulated wealth can significantly reduce retirement savings because the time frame for recouping losses is relatively short.
By removing IncomePlus’ 20-year limitation, Manulife has responded to one of GMWB’s main criticisms: that the product does protect investor capital, but does not take into account the fact that many retirees will be in retirement for much longer than two decades.
“Life expectancy in retirement actually increases with age,” Milevsky says. “In other words, retirees are chasing an ever-increasing life expectancy. Therefore, it is important for people to recognize the longevity risks they face and create a financial management strategy that protects or protects their ability to retire for 30 or more years.
Product improvement may also be a way for Manulife to re-differentiate itself in the GMWB market. In April, Sun Life Financial and CI Financial launched a similar product called SunWise Elite Plus, which promoted itself due to its flexibility and availability across a broader range of Sun Life/CI mutual funds.
Manulife has increased the number of seg funds available with IncomePlus to 25. The company is also extending the maximum length of its 5% annual bonus for investors who delay withdrawals from 10 to 15 years. This expansion allows Manulife to more effectively promote IncomePlus to younger investors, says J. Roy Firth, executive vice president of Manulife Investments.
While this was not the target demographic for IncomePlus, Firth says there is significant demand from financial advisors to tailor the product to the needs of younger clients.
“A younger investor aged 45-50 who has maybe 15 years to retire could see an increase in investment guarantee of at least 75% if they don’t touch the money for that period. Again, this lifetime income guarantee is protected against market downturns. We believe that the extended bonus period will be attractive to younger investors,” says Firth.
Investor Economics research estimates that Canadian market demand for GMWB products could reach up to $40 billion over the next five years.
At this time, Sun Life says it has no plans to make similar changes to SunWise Elite Plus. The extension will automatically be made available to existing IncomePlus investors on December 31, 2007.
Submitted by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com
(10/01/07)
