S&P Fund Services Rates North Protected Retirement Guarantee As 'Strong'
S&P Fund Services has assigned its ‘Strong’ rating to the North Protected Retirement Guarantee (PRG). The rating reflects our view that the product is the superior guaranteed minimum withdrawal benefit for life (GMWB for Life) product in the market.
“In our view, PRG is superior to competing GMWB for Life products in the domestic market. It provides greater flexibility, choice of underlying funds, lower underlying fund management fees, and higher risk-return strategies. Furthermore, based on our Monte Carlo analysis, PRG generates better income and commutation value (CV) outcomes due to lower effective fees,” said S&P Fund Services analyst, Rodney Lay.
“PRG is effective in providing retirees with nominal income certainty, partly to address income sequencing, longevity, and market risks. It is also best suited to those in good health, with a family history of longevity, and who are concerned about outliving their income as the total return on a lifetime annuity increases the longer the investor lives,” said Mr. Lay.
“However, we have two major concerns regarding GMWB for Life products, including PRG. On average, GMWB for Life products do not provide a guarantee against inflation risk, with real income expected to decline over the longer term. Furthermore, the likelihood that income payments will increase is subject to significant market-timing risks, with flat, weak or volatile market performance in the earlier stages of the investment greatly reducing the likelihood of income increases,” said Mr. Lay.
