Annuity anxiety

From

Denis Donohue

Outsourcing your retirement income needs to an annuity provider was supposed to reduce your anxiety levels. Recent developments at the likes of Challenger are causing annuity owners some disquiet.

As yields have continued to decline in the fixed interest and property sectors, Challenger amongst others has raised a few eyebrows by moving up the risk curve in its investment selection and into more exotic investments.

Challengers recent share price has been under downward pressure which may be viewed as a barometer of corporate health. While share price movements of annuity providers doesn’t directly impact their annuity products, the corporate parent is the ultimate guarantee of the investor’s annuity capital base.

A combination of changing underlying investments choices and weaker corporate head offices is causing annuitants to revisit their annuity strategies. This in part has led to declining inflows into the traditional annuity products.

Investors are more actively diversifying amongst annuity providers to spread the corporate risk more evenly and adopting more “annuity-like” solutions. These often provide even greater diversification and sometimes greater transparency and control.

Diversification can be effective in reducing risk. Anxiety about developments within the traditional annuity providers is leading to greater care being taken in sourcing annuities. In the long term, this can only benefit investors as they prepare to better fund their income needs in retirement.

By Denis Donohue, Executive Chairman and Head of Investments

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