Lifetime income streams explained: How they work and who they’re for

In this video interview, we’re unpacking an important – but often misunderstood – area of retirement planning: lifetime income streams.

These products are designed to provide income for life, helping retirees manage the risk of outliving their savings. Yet despite growing attention from policymakers and super funds, only a small proportion of Australians use them.

Joining us is Professor Geoff Warren from the Australian National University and The Conexus Institute, one of Australia’s leading experts in retirement income design and policy.

Together, we explore how lifetime income streams work, the different types available, the trade-offs involved, and who they may (and may not) be suitable for.

Transcript

Today, we’re exploring another important and often misunderstood topic in retirement planning, lifetime income streams, also known as lifetime annuities or lifetime income products. These products are designed to provide income for life, helping retirees manage longevity risk and enjoy greater confidence that their money will last as long as they do. Yet despite these potential benefits, only a small proportion of Australians actually use them, which raises an important question, why?

To unpack this, we’re joined again by Professor Geoff Warren from the Australian National University and the Conexus Institute, one of Australia’s leading experts on retirement income design and policy. Geoff, welcome again. Very happy to be here. Geoff, let’s start with the basics. Can you unpack what lifetime income streams essentially are?

Lifetime income streams are basically a financial product that pays you income as long as you remain alive. That’s it in a nutshell. They are very complex, though, and there’s lots of different types. What I’m going to try to do today is unpack that for you, to give you a basic level of understanding of what’s going on in this space?

The best way I think you can think about them is almost as a composite product. It’s a composite product that contains investments underpinning it, along with something we call mortality credits. The investments that underpin the income that’s generated could be, for instance, in fixed income, or it could be actually in growth assets of the share market or something like that. We’ll get to the implications of what that means later. But mortality credits, it’s a terrible word. It’s one that was designed by actuaries, but so be it. I’ll use it anyway.

It’s basically a contract whereby when you enter into it, once you die, you may give up some of your capital, and then it gets transferred over to the others who are still also in the product, and it uses that fund to fund ongoing income for the remainder.

You can call this like there’s a pool of people there. Those who die early fund the ones that continue on. That’s what gives you income for life. Now, as part of this bargain, to enter it, it does mean you’re going to have to give up some access to your capital. It’s like a trade-off. You’re getting income for life, you’re giving up access to capital. That Income For Life comes from the mortality credit side, which is built on top of an underlying investment. Together, they work together to generate income that lasts costs over time, right up until you die.

Then when you die, often, and there’s caveats on this, you don’t get anything back, so you’re giving up that access to that capital. This tries to break it down into the components of a LIS, I mean lifetime income stream, so I’m just using that shorthand. A LIS paying an inflation adjusted income stream of $5,000 or a real income stream of $5,000, say, based on $100,000 being invested in it. What we see there is three contributions. One is, remember, there’s an underlying investment here in fixed income, most likely in this case. That’s generating income because it’s actually generating interest expense, and then that pass through.

But at the same time, we’re also drawing down on capital. The capital is diminishing over time. As the capital is diminished and helps to fund some of the income, the amount of income you get also diminishes. Then what happens as you go through time, mortality credits kick in. What’s funding your income at older ages is the fact that other people are dying and they’re leaving some funds behind in the pool and you’re getting benefit of them. That’s how they all work together. It’s different components over time. I thank Challenger for providing me with this chart.

That’s essentially what’s happening here. I’d like to call it the secret sauce here is the mortality credits, whereas the other two lines are more descriptive of what you would get if you just invested your capital and fixed income and just drew down capital and spent some income along the way, and you would be left with not much else at the end. And the key nuance here is to get that. It seems like a great deal, right? Oh, an automatic income, $5,000 as long as I’m alive. Part of the bargain is that you have to be willing to give up some of your capital when you died, so it passes over to whoever happens to remain alive.This is like a trade-off. It’s a trade-off for income for life, but for giving up some access to your capital.

Lifetime income streams come in many different forms. Can you outline the main types and the key features?

Yes. I might move over to the next slide here. I’ve listed it out. I’ll talk through each. You can get different types of income streams. Fixed nominal, that’s like it pays you a nominal, not inflation, but fixed amount for as long as you live. Fixed real is the one I showed before where it pays an inflation adjusted amount of income for as long as you live. Then there’s investment length. Investment length is the underlying investments are not invested in some fixed income so it’s sure what income when you You invest in fixed income, you know what return you’re going to get over that period of investment. Here, it’s uncertain. You still get the same mortality credits, but the thing is, the underlying assets are invested in in growth assets or something else that’s vulnerable but offers a higher rate of return. Now, as a consequence of that, when you go into investment link, a lifetime income stream, sometimes called market sometimes called variable lifetime income streams, you will end up with variable income because it’ll fluctuate with market performance. But also because there’s higher returns coming from of those investments, higher expected returns, you expect to get a higher level of income out of it.

This would be more suitable for somebody who wants to use it a little bit of insurance against longevity, against living too long, but also wants to… He’s happy doing invest in something a bit more aggressive, take some volatility of income, but luckily get higher income out of that unless the markets perform terribly. It’s very similar to what happens if you just invested straight in your funds in an account-based pension or something. You could invest in defensive assets and it’ll give you lower income, but you’ll be more secure. Or you could invest in growth assets and you’ll get higher income out of it because it’s generating higher retinents. We’d expect to get a higher income, but it’ll be more volatile, and that income is less guaranteed. Same thing happens with these lifetime income streams. This is what I’m saying is that the best way to think about it is there’s an underlying investment there. It might be fixed income, it might be growth assets or a balanced fund. Loaded on top of that, the other is the mortality credits. That’s what I mean by it’s a composite product. It’s stitching both of those together. The second thing is when the income commences, this is usually true of particularly fixed lifetime income It could start immediately.

So as soon as you buy the product, you start getting the income. The other thing you can do is defer it when it starts, say to age 85 or something. I get paid an income if I survive to age 85. What tends to happen is that you’ll get a lot higher income for each dollar invested out of the deferred annuity because you’re putting your money up front and you’re not getting any return for it after that. There’s also a less chance that you happen to be alive and even enjoy that income. But if you do get there, it’ll be a lot higher. That can be used to ensure the back-end. If you could use your other assets to see you through to age 85 and say, Okay, from age 85, I have a deferred annuity place. I know I’m right for income after that point, and then manage your way through in the end of your beating period. Whereas in the immediate annuity or lifetime income stream will give you a layer of income immediately straight away. So two different things. Another feature is who receives the income. So the income could go to you as a purchaser only, or you could have spouse reversionary income.

The benefits go to the spouse. So that would mean that you get the income. When you die, spouse continues to get the income until they die. Now, clearly here, less is being put into the pool as early. Or there’s a chance that’s the case. What will happen is if you enter into one of those, you’ll be offered lower income if it was just yourself because, again, the chance of money being transferred into the pool to support the others is lower. It’s going to occur later.

Another distinction is the provider. It could be an insurance company, so that would be the likes of Challenger, Generation Life, Allianz, in Australia, or it could be a member billing arrangement. ART, or Australian Retirement Trust, and Unisuper have member billing arrangements. The difference is when you go for an insurance company, they make the guarantee to deliver it. They do all the insurance, but there’s, of course, going to be costs loaded in there because they’re going to make a profit on it. It may cost a bit more, but it’s essentially guaranteed. The contract. that is guaranteed by the insurance company, and they have capital sitting behind that to support it.

In a member pool, it’s like the super funds just saying, We’re going to arrange this pool on behalf of our members, so they don’t have to pay the profit margin. But what it means, can mean then, is that the member pool, all the risks are shared by the members within that pool. What could happen, for instance, if members in that fund lived a lot longer than they, started to live a lot longer than originally the sums were done on. What would happen is there would be too much money being paid out earlier and then it had to be some correction for that. The members are bearing the longevity risk between them as a group as well as even though they’re ensuring individually, but the whole group is bearing the longevity risk. That is the risk that everybody is in that product It lives longer. But they’re generally a cheaper way of doing it because you don’t have the profit margin. You’re not paying an external provider. The fees, what you pay, this makes it very hard to tell what you’re paying because they can manifest in many different forms. It could be just a straight fee, but that’s not the end of the story because the fees could be embedded in the income they paid.

So one way the provider could get a fee is by giving you a little bit less income on the way through. It could be other placement and distribution fees or whatever in the structure that you’re dealing with, say, if you went through a financial advisor. What it means is you probably won’t know what it’s really going to cost you. This is one of the issues in this area. But you almost need to look at what it’s offered you as a deal as a package on the surface and just assume that the fees are embedded in there somewhere. Don’t just anchor on the fee that’s most visible because that may not be the end of the story. There’s age pension impacts. It’s possible to get an uplift to your age pension if you’re in what they call the age pension taper zone. That is, you qualify the age pension, but you’re not a full age pension, so you’re part of pension. There can be some uplift there.

Is it also that it only counted 60% of the value? Is that right?

Yeah, that’s correct. It counts as 60% of the value. I think 30% beyond age. Oh, yeah. Because you’re aged 85. There’s also income test rules. This is all very complex. But I think the 60% discount might seem like a discount. I think it was designed to even out between lifetime income streams and other things. Products, basically, bearing in mind that the capital goes in initially here, whereas if you put it in an account-based picture, the capital is always there and they count the full amount. It’s taking into account that you’re just using the amount you initially invested as a baseline because that carries all the way through. What they’re doing is giving you the discount and then check you get down even more later on to We try and even out between the two choices.

A final minor point, you see sometimes the differential pricing for males and females, for instance, Challenger offers both rates. That just simply reflects the fact that on average Females live longer, so they’re less likely to be putting the assets back in the bill earlier than males are. That’s all that reflects. But it’s just worth being aware that’s out there. There’s lots of different features, and I haven’t gone through them all, but I think they’re the key ones.

You mentioned the need to commit capital as part of the deal. Obviously, people are getting an income, but does it mean that they can never access those funds again? Could that be an issue for some people?

That could be an issue for some people. We can get to why you might take it up later. Clearly, your need to have access to your capital is an important consideration, whether you take the trade off or not. There are deaf and There are death and exit benefits that can be got in many of these products. Most of them do offer that. But what happens is a death and exit benefit. A death benefit means if you die, the capital is given back to your partner or your beneficiary that you nominate, whereas an exit benefit means you have the ability to get your money out. Clearly, if you go for either of those options, if there is an option, that’s going to cost and you’ll get lower income. It’s 10. It just means as part of the deal, you’ve got to contribute something into the pot, into the pool. If your chances are you’re going to contribute less, then they’ll offer you less income to balance it up. That’s what’s going on. There is a limit to that, though. There’s a thing called the capital access schedule. It’s set by the government. You You can find it on the Centrelink website somewhere, or the DSS, Department of Social Security’s website, to be correct.

What it does is it’s the sliding scale of how much capital is allowed to go back to people that ends at life expectancy, which would be around about, let’s say, age 85, roughly. It means that you can get a bit of capital back earlier on, but it slides down, and then by the time you get after life expectancy, you can’t get any back, according to regulations. What that means is that you can get some access to capital out of it. If you do have that option, it will cost you in terms of income. When I look at that, the question I ask is, do you need access to capital within the lifetime income stream itself? Most of the time people don’t put everything in a lifetime income stream. They shouldn’t, actually. I don’t think it’s sufficient. They’ll have part of your assets are allocated to a lifetime income stream, and part of it may be put in an account-based pension. That account-based pension gives you flexible access to funds. If it was me, I wouldn’t go for the death and exit benefits. I’d be using that as to get the maximum income I can in my lifetime income stream, and then rely on my account-based pension for flexible access to funds, knowing it It will draw down over time.

You’re also taking a bit of a bet here that you need your flexible access earlier on. Later on, you may be in be better to just have the income and guarantee income coming in. If you’re happy with that arrangement, then maybe you don’t need these definitely extra benefits. But everybody offers them because they’ve discovered people won’t take them up without them. This all comes from what I think it’s in the issue of narrow framing. People look at the lifetime income streams as a product in isolation and say, I’m going into a product where I can’t get my capital out, and that’s in the story. The offer is here to offer these death and exit benefits to give people some comfort about that. But if they die tomorrow, they’ll get something back, or at least their beneficiaries will. We just can walk through this slide. What this is going to do is it’s an attempt by me to bring all this together by looking at the flows that go between the retiree, mostly the purchase of lifetime income stream, and whoever provides it. Remember, that could be a life insurance company, or it could be a group pool, like a super fund that’s pooling all their members together.

The first thing you do is you got to contribute some capital, so that’s when you buy it. There is another arrangement that is only offered by Allianz Retire Plus, whereby you can buy it as a series of insurance premiums. Currently, that’s used by a couple of providers in the US. But generally in Australia, you just decide to buy a lifetime income stream and contribute some capital. They give you back a lot income for life. As I said, it could be fixed, nominal or real. It’s income stream, or it could be investment linked. It’s underpinned by the investments in which those assets go and the mortality credits. The other flow that can come back is if you have an extra exit and death benefits, which are often restricted, that’s a capital access schedule, that can come back if you happen to die or you decide to exit, which can be costly to have that option. Then what happens is in the little arrow, down the bottom is any residual capital that’s left in the spill is still in your product upon death then goes back to the to the insurer or the lifetime income or the pool will just help pay for other people. That’s basically what’s going on in other neighbourhood meets products.

What do you consider to be the advantages and disadvantages of lifetime income streams, and what type of retirees might benefit from allocating to them?

Okay, well, let’s have a look at the next slide then, because I’ve listed out here the advantages and disadvantages, and I’ll just go for the advantages. I mean, the first one is obvious. It’s income for life. It provides something of a floor to your income that reduces the risks to the level of your income and the sustainability of that income. I suppose the emphasis here is the sustainability. Because it’s income for life. The risk to the level, yes, you can deal with them through a fixed annuity. If it’s an investment-linked annuity, you still have some risk over the level. But you also have potential greater upside in income that will deliver. It actually boosts expected income. This is a surprising bit, and I’ll show this in the slide in a second, but it’s the real reason why you It’s a real reason why you might want to take it up. It’s not just about getting income for life. It’s actually about having more income. That’s the surprising bit that I don’t think is well understood. The reason why it will give you more income for a given asset mix. Let’s hold the asset mix, the unbuying asset is the same.

Three reasons. The mortality credits actually act as an income source. If you happen to survive. Second is, because you have… I mean, in retargeties who have income for life might feel, I don’t have as much risk of running out. I have the back end of my life addressed because I had this product in place, it can give them confidence to draw more earlier. What the effect of that is, is if you draw more earlier, bear in mind that you have a chance of not surviving through the very old age, but in any case, you have that short, you find that the whole level of your expected income goes up because you’re drawing more when you’re more likely to be able to enjoy it. You do so because you feel confident you’re not going to run out. There’s that possible age pitch and uplift we talked about before. When you combine all those together, and actually, as I’ll show in a moment, it does lead to higher income. The third benefit is a reduced fear of running out, which is really just a piece of microfinance, which is valuable in itself.

Now, the disadvantages, number one is really the main one you got to consider about. You’re committing capital. You reduce your flexibility to do something. I’ll say a bit more about that in point two. Because you put it in this product, it’s not that easy to get it out and so on. You also reduced your inheritance that you might provide, particularly if you live beyond that life expectancy, age 85, there won’t be anything. It’s really when you do this, if you do this bargain, you’re going to work out the trade offs and which one That’s right for you in particular. You’re locked into a product in the provider, even if you can exit it, it’s not costless to do so. I mean, you can pay in terms of the lower upfront income, but getting that ability is costly. Then it’s often just a hassle to do it as well. I’d also say that you’re locked into a product in a provider for life. One of the things that some people are concerned about is that the insurance company will still be around in 30 or 40 years. Although I would think in that case, if the insurance company went broke, it would probably hand its book over to somebody else. The third one is the embedded costs that may not be visible.

It touches on, are they good or are they a good or bad deal? The problem is you may never know because you don’t really have visibility of how much you pay for the product. I will need to explain this chart a little bit, but basically, I think it tells the story very well. Each of these charts, the dark-black line, is what you would expect in terms of getting your income. The grey lines are the range you might expect, moving right out to something that has a 1% to 99% range, which is basically spans nearly everything that can happen. What we have on the left is what you get if you put in a 60/40 balanced fund, like an account-based feature with a 60% growth and a 40% allocation. On the right-hand side, it’s exactly the same underlying assets. There’s 50% in that balanced fund, but the other 50% is put in an investment-linked annuity invested in a 60/40 fund. The difference is, I’ve added, going into that, you’ve added in for half of your assets, access to these mortality credits. What you find is when you look at that, the chart on the right is higher and more stable, and it doesn’t run out towards the end.

Essentially, what’s happening, you got higher expected income, you’ve got protection on the downside, and you also actually, if you have really good two turns, you actually have more upside because there’s a bit of a kicker there for mortality credits. This hasn’t taken into account the age pension benefits either. If you looked at that, you said, I’d have a chart on the right. Of course, it’s obvious. That’s so much better. The cost is you have to trade something off, you’re trading off access to capital. What you need to ask yourself is, would I rather have the chart on the left, an entire access to capital, or would I rather have that chart on the right, in which case I’m going to give up my access to some of that capital.

The other thing to consider is that you’d only enjoy the whole pattern I’ve put up here. It goes to an age 109, I think. If you only live to age 85 or 90, you’re only going to get the first part of that chart. But the thing to put your eye on is the first part of that chart is higher on the right than the left. That’s what I’m saying, is you get more expected income, you got your more ability, more confidence to draw down now because you know more if I survive, I’ll have it come the last later. You don’t have to hold as much back. Just in case.

The one on the right has 50% in a lifetime income stream. Has there been any research on what the optimum might be, or is there a range that is typically considered in terms of how much you might allocate to a lifetime income stream?

Yeah, that’s a good question, Robert. We’ve done some academic research around this, but we didn’t have an investment annuities in there. We just had real fixed annuities, deferred in immediate, and the ability to choose your asset mix between growth and defensive of assets, and then worked out what the model said was the optimum. It was very rare for the annuity component, a lifetime income streamer component, to get above 30%. Most of the time, they would recommend. The recommendations are in the 10, 20, 30%, depending on what it is. It might be a bit less if it’s a deferred annuity. But the interesting thing is when you do that, the the asset mix becomes 100% growth with it. What it’s saying underneath that set up is the optimal strategy is to buy these fixed annuities for your defensive exposure and use your other assets to maximise income by putting more in growth. That’s generally what comes out. When you go into an investment-linked annuity like this, you actually are changing the mix there so that you can put a certain amount in the growth assets and a certain amount in the defensive assets, so you’re reducing your investment risk.

But then loading the mortality credits on top of both of those things rather than having them in two separate parts as we did in our research. I think if you’re in that configuration, it makes a little bit more sense to have the You have the lifetime income stream component higher. But again, it’s a matter of the lifetime income stream will give you more higher income for life. The question is, how much would you pursue that to give up access to capital? That’s really how much capital are you willing to give up to pursue that?

What types of retirees might benefit from at least considering these lifetime income streams?

First thing I’d say is that most retirees would actually benefit from a higher expected income. I think it’s something that’s well worth considering by everybody. Bear in mind, I’m saying higher expected income for a given asset mix that you have under pitting it. I think it’s worthwhile considering, but it’s more beneficial for some. Those who really desire to have a certain amount of guaranteed income for life should really give it a strong consideration. Some people, but people who want flexible access to funds or think that their circumstances might change, in that case, it might not be so attractive for them, or you might actually only put a small amount in, if anything at all. It all hinges around how you feel about that trade-off between losing some of your access to funds and leaving an inheritance versus having some security for the remainder of your life. I think that’s really the nub of it. The other thing that you might consider is how long you expect to live. If you reckon you have a good chance of living to a life type old age because your parents have lived to an old age and you’re very healthy, it’s probably a better deal for you than if you’re suffering from heart conditions or diabetes and you’re likely to not live so long.

Sure, different companies try to price for these things, but sometimes they don’t effectively. If you see the challenger annuities and they’re the same price for everybody except for males versus females, well, then you might consider that. They do try to price that into their prices. They charge everybody a bit more because they know that they have effects are occurring. But for an individual dealing with it, you might consider that. I think it’s very much a personal choice. As It’s best for you to see a trade-off and what type of trade-off you want to have. The other thing you might consider is if I needed a guaranteed minimum level of income for something, like I had to pay the rent. You might actually say, I’m not going to go into investment-linked annuity. I need a lifetime annuity of some description that gives me that guaranteed level of income to make sure I can get myself through. Again, that would be a personal situation.

Do you happen to know how many retirees in Australia, percentage-wise, might have purchased these?

Very small. Takeup has been very low.

Single-digit %, I imagine.

Yeah, I don’t know the exact number, but yes, I think that’s what it sounds like. I This is well known. It’s around the globe, the academics call it the annuity puzzle. Similar to what I always talk about, if you put annuity or a lifetime income stream in your model, it comes back always saying, Hold some, but people don’t. It leads to the question of why they don’t. When we get our explainer around these lifetime income streams, you find the Conexus Institute, if you want to go really into the details, we cite in the back of it 38 reasons that they’re given the literature why people don’t take annuities are, some more plausible than others. For me, I think there’s three main ones. First one, people don’t understand them, so they don’t buy them because they don’t understand it. They’re complex products. They’ve not been explained to them. Second is how they’re framed. They’re often framed as, I’m as an investment product, I’m making this investment. If I die tomorrow, I’ll get nothing back. That sounds like a bad deal. If they were framed alternatively, this product gives you a guaranteed income for life. It’s looked at it as, and it will protect you against longevity risks.

It’s looked at as like a vehicle to deliver you consumption or support your spending in an insurance type vehicle. People may It’s a bit more responsive to it. There’s academic research there where the annuity is described in terms of what it does. People get a lot more interested than otherwise. Finally, it’s how they’re offered. For people to take up lifetime income streams, they need to go and purchase them. Many date because they’re complex. Advisors have not always recommended them for various for reasons, like they’re giving up access to the funds and so on.

I think that for me, the real thing that would get more use of these lifetime income streams is if they were offered as part of an integrated retirement solution. That would be as a super fund said to their members, This is the solution for you. You should have this much in the account-based pension. You should have this much in the lifetime income stream. This is the drawdown strategy. We’re going to put all together as a package and deliver it to you and implement it for you, then I think you’d see a lot more take up because people would see that as a recommendation from their fund, and they’d probably give it serious consideration. At the moment, they’ve got to click on the product I investigate it, and go and buy it. I think that really you run into all those other problems of lack of understanding and complexity.

What is the super industry in Australia actually doing about Which funds are offering lifetime income streams and what are the products like?

I understand you’ve done a piece of this at SuperGuide, Robert. Is that right?

Yeah, we do. We’ve got a list of which super funds that offer lifetime income streams. I’d recommend everyone watching to check that out.

At this stage, only a few super funds offer. There’s, of course, There is, of course, the providers out there like Challenger and Allianz and so on in general life that you can get them from. AMP North is another. But what’s happening is there’s a lot of activity we hear going on at the moment of super funds developing their offerings in these areas. Sometimes that’s done in conjunction with a provider. One organisation One insurance company that is active in supporting super funds to offer to develop these offerings is TAL, for instance. Other super funds are talking to people like Challenger and Allianz, potentially, about them offering their products as part of their solutions or as part of their menu. There’s a lot going on in trying to make sure that they can be delivered to members. The other thing we also see is quite a bit of difference between when a super fund offers something to their members, it’s often a very simple, basic product. Australian Retirement Trust and Unisuper, for instance, are two funds that offer products to their members. They’re very, very basic with not many bells and whistles. For example, ART offers an investment-linked annuity, fairly basic one, invested in their balance fund.

Unisuper offers a offers a fixed real annuity, and just that, that’s it. Other super funds are offering products of the insurance, so you can buy challenger annuities through Commonwealth Super Corporation. They have a relationship there or Telstra Super, for instance, has a relationship with Challenger as well. That’s mainly just a way of getting vendors into a lifetime income stream that is through an outsourcing But apart from the super funds, they generally offer just something very simple. The other trend is for it to be offered through the advisory platforms. And AMP North is a classic example here, and Generation Life is also selling through advisor. What happens there is you end up with very complex and high-functionality products where you can choose, do you want an exit benefit or a death benefit of it or not, what type you want. You can even choose the underlying investments that sit underneath the lifetime income stream.

They’re only offered through financial advisors. The idea then is that the provider is allowing the financial advisor to build the solution they think is right for their client. That’s why they’re providing a lot of functionality Then there’s, of course, Challenger. Anybody, they not only offer three funds, you could roll up and buy what they offer. They tend to be a suite of reasonably straightforward products without There’s many bells and whistles.

The elephant in the room is annuities do have a reputation or there’s this perception that they’re expensive. How are they actually priced and how can retirees compare them and know if they’re getting a good deal?

This is really hard. It gets back to what I said before is you don’t know where the fees are appearing. They could be a fixed fee, they could be just in the form of promising you a lower income. You can’t really tell what you paid for the product. It’s going to be very hard to compare them across providers. To some extent, I wouldn’t be trying to unpack that Gordie or not. I’d probably be saying, I’d look at the product and say, Is this right for me? Is it what offer me? Does that help me out? I wouldn’t let the fact that I can’t get this bill around what I’m paying prevent me from taking it up. That would be my position. Hopefully, over time, the rating houses will work out a way that they can compare it and you give recommendations. That’s why I think that would be ideal in due course. We aren’t there yet. But I’d expect in due course, we will get there for that. That would be very helpful. The other thing to bear in mind is if you go through a insurance company, if the provider is an insurance company.

You have a provider that’s an insurance company. Well, you know that you’re going to have some layers of fees in there. They’ve got to make a profit. If you go through, you have a full vehicle for your superfund, the costs are going to be lower because they’re basically being shared by the members, and there’s no profit margin in there. But still, it will be hard to tell how much of actual costs.

Do you think the perception that annuities are expensive, do you think that’s fair or unfair? Is it down to just misunderstanding about how the fee sees the visibility Any of the fees?

I think there’s an element of that. People don’t know, so they assume they must be ripped off because it could be the case. As I was saying before, I think I would judge value by, does this product make my retirement better? All things considered. You’ll see the terms. If you’re going to challenge your annuity, for instance, they will give the rate straight up. You know exactly what income you’re being given for life. If it’s a fixed income, that is, investment link, you don’t know. You say, Well, is this good for me? But you’ve got to look at it through. Is this $100,000? If I get $5,000 real income for life or whatever it might be, it might be $4,000, is that a good deal for me? Does that really help? I think you’ve got to just do that and say within that 5,000 or $4,000 could be a minute’s in fees.

I presume in Australia, they’ve only ever been purchased through a financial advisor. This is the first time that they’ll be going to a much broader market through super funds. So there’s going to be a lot more explanations, a lot more visibility and transparency over these issues.

Yes, I certainly hope so over time, and I suspect as the market develops. But where we are now, people are flying blind to a little bit with a complex area. But really, for me, the killer app, if you want, is when super funds can recommend a lifetime income stream as part of an integrated comprehensive solution to solve your retirement needs. I think then things will move.

Well, thanks, Geoff. Thanks so much for providing all of this insight today. I think it’ll be useful to a lot of people. Thanks again. You’re welcome.

It’s a pleasure.