Adviser Newsnotes

The starting income or price of an annuity is determined by the nature of the increase potential, the composition of the underlying investments, and the current market conditions. While it is equally important to consider the expected income growth over a long-term investment horizon, the annuity conversation with clients generally starts with: How much monthly income can I secure?

The starting annuity income takes into account several factors like age and sex (which among other things largely determine life expectancy), purchase amount and any selected benefit options (minimum payment period or spouse’s income). While most of these details are static, there are certain market factors which change daily that also affect annuity rates.

Retirees can take advantage of an unprecedented scenario, especially if they are looking to temporarily increase their living annuity drawdown as allowed by National Treasury.

A combination of factors caused long-term interest rates on bonds to spike, and higher long-term interest rates is good news for pensioners because annuity rates improved significantly. This means you can restore income sustainability to pre-crash levels or even better.

And a blended living annuity, with the ability to partially annuitise inside the living annuity, enables you to recommend an optimal balance between sustainable income for life and capital legacy in a single product. 

Opportunities for pensioners in COVID-19 market conditions  

Conventional wisdom suggests that investors should not make any drastic changes to their investment strategy during times of market stress. While this certainly is valid for the younger generation in their accumulation phase, for investors in the decumulation phase, it is important not to focus purely on the absolute change in the market value of their investments, but rather to consider the relative movement in the income that they can secure at each point in time.

This is why it is important to understand the effect this recent period of market volatility has had on Just Lifetime Income (JuLI) annuity rates – and there is in fact some good news.

Market crash caused by COVID-19 is a robust, practical due diligence test

When our with-profit solution, Just Lifetime Income (JuLI) is subject to due diligence, there is always an appropriately significant focus on how it will cope with extreme market conditions. Current conditions are a good practical test to supplement the “what if” scenarios that are usually tested.           

We are pleased to report that the risk management has been successful and has done exactly what it was designed and expected to do, insulating JuLI policyholders from the extreme market volatility of the past few weeks, and protecting their guaranteed