by Susan Edmunds
NZ Income Guarantee’s variable annuity product allows investors to retain their capital and withdraw it when they like. The balance of a person’s savings, after withdrawals, can be paid to their estate if they die before it is used up. If they outlive their savings, the payments continue.
A separate insurance business receives an individual premium from each investor cover the potential cost of them outliving their retirement capital.
It had been hoped that the product would launch last year but NZIG had to wait for the Reserve Bank to issue new insurance solvency standards.
Last month it issued a near final set of requirements for variable annuity businesses. The final variable annuity standard will be published early this year.
The new solvency standard sets out the minimum capital and risk management processes a provider must have if they are to offer products to help manage financial risks in retirement.
Stewart said the standards were a “bit tough” but they demonstrated that the Reserve Bank was forward-thinking. “It’s a cautious approach but not unfair. We’re pretty close now.”
He said NZIG’s documentation was ready to go and it was in the process of purchasing insurance company Pacific Life. “That gives us a [life insurance] licence rather than having to apply for a new one. The application is with the Reserve Bank to approve that now. God willing and with a bit of wind in our sails we’ll be doing this thing in Q1 next year.”
He said the company would need to be careful to explain that it was part of the answer to the decumulation question, not the whole answer. “Retirees still need some money in the bank and growth assets.”
Stewart said the new standards would require NZIG to have a bit more capital behind it than it had expected so further financial backing was also being sought. But he said it had willing backers coming in.
The industry was ready for the product, he said. “A variable annuity more equitably shares some of the fundamental financial risks retirees face between product providers and retirees, today the following risk are solely born by the retiree… In our view the standards reflect appropriate caution and consumer protection over a complex business line, but at the same time provide the opportunity for much needed innovation in the retirement income sector.“
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