Innovation in the post-retirement market will help planners overcome some of clients’ psychological objections that make traditional annuities a poor seller, according to Russell Investment Group.

Don Ezra, director of investment strategy, expects a raft of new products to emerge over coming years that provide individuals with more flexibility around the ‘decumulation’ phase of superannuation – when they are gradually drawing down their super investment. Lifetime annuities, whereby an insurance company guarantees payments for life by pooling the risks of a large group, have proved unpopular with retirees who are reluctant to lock in fixed income returns.

According to Ezra, alternatives include fixed-term decumulation; guaranteed minimum withdrawal benefits for life; unit trusts with longevity pooled; and advanced life deferred annuities (ALDA). “There’s an asset allocation issue [with traditional annuities] but psychologically what is more important is with these alternatives you’re not changing the ‘do I survive too long’ gamble with the ‘do I die too early’ gamble,” Ezra says.

“If you have some kind of managed product that gives you the balance available on death and you can surrender it and cash it in at any time then you still have ownership. That’s a barrier that’s proved in the past to be too large for people.” Inflows to retirement income funds were up 34.2 per cent in the year ending September 2007, according to actuaries and researchers Plan For Life.

Join the discussion