Are guaranteed retirement income products looking good again?

As longevity risks and affordability challenges put increasing pressure on Canada’s retirees, three of the country’s largest financial institutions are working to refocus the conversation on what could be an under-utilized but growing corner of the financial planning space for plan sponsors to consider.

Last week, Sun Life released the results of an Ipsos study it commissioned on guaranteed income retirement products, including annuities and guaranteed investment funds (GIFs).

Among many concerning findings, it found nearly half of boomers (46%) – including 49% of boomer women – don’t have plans to use a guaranteed income retirement product to ensure their lifetime financial security. What’s more, only 24% of boomer men and 12% of boomer women surveyed said retirement income products figure in their financial plans.

Those statistics speak to what could be a gaping gap in Canadians’ retirement and estate plans, Sun Life said, noting that “having a financial roadmap with a mix of guaranteed investment solutions, such as annuities and Guaranteed Income Segregated Funds, has never been more important to build wealth and pass it on to the next generation.”

Against that backdrop of growing need, BMO Insurance announced it was lowering fees for most GIFs in the 75/75 series of its shelf, including reductions for 10 Class A and 13 class A Prestige 75/75 series funds, as well as a new “ultra-low-cost” Prestige Class F fee-based option for those investing $250,000 or more. It also unveiled four new investment options, including the BMO Aggregate Bond Index ETF GIF.

"By adding new segregated fund choices and reducing fees on popular funds, we are creating an even more competitive solution to help advisors build and preserve wealth for their clients," Rohit Thomas, president and CEO, BMO Insurance said in a statement. "Offering our Prestige option to fee-based advisors is another example of how we are helping our clients make real financial progress, as we continue to expand our reach."

Meanwhile, Manulife made its comeback to the guaranteed retirement income space by reintroducing Manulife annuities – including term and life annuity solutions.

“We feel that it's the right time to re-enter this market,” Paul Savage, head of Individual Insurance Canada at Manulife (pictured above), said.

While the steep acceleration in interest rates since last year has taken a toll on Canada’s debt-saddled households, Savage says that same dynamic has breathed new life into the annuities space, with payments on the products now being much more attractive than what clients would have seen over the previous five years.

Aside from providing longevity risk protection that typical retirement savings approaches may not be able to, Savage notes that annuities come with a number of payment guarantee options to ensure that if the annuitant dies early, their specified beneficiaries will receive a lump-sump payment. Increased concerns around costs of living and uncertainty in the markets, he adds, have whetted people’s appetite for reliable retirement income.

Outside of lifetime annuities, Savage says term annuities are seeing more demand from Canadians looking to plug some gaps in their retirement income planning. For people whose government-supported income benefits might not kick in until after their planned retirement age, he says term annuities may be a suitable solution.

The amount of income an annuity holder can expect will depend on numerous factors, including their age, sex, their purchase amount, and the guarantee period they select. As an example, Savage said for a 65-year-old single male buying a $100,000 life annuity from Manulife with a 10-year guarantee could expect to receive $6,900 a year of annual income; a 70-year-old would receive around $7,800 yearly, while a 75-year-old would receive $8,800.

“One of the great things about annuities is the transparency. Any costs and fees – expenses to administer, commissions to the advisor, all those charges – are embedded in the annuity quotes,” Savage says. “You have the premium amount, and the quote that you're getting from annualized is the amount that you'll receive – no fees or costs on top of that.”