Guaranteed Products in Australia: A market ready for launch or dead on arrival?

As of December 2014, the value of assets in Australia’s superannuation system totalled $1.87 trillion1. With a population of just over 23 million, this incredible feat – a virtue of introducing compulsory superannuation in 1992, is the envy of many, resulting in accolades and compliments on the advanced state of Australia’s retirement savings industry.

However, the Global Financial Crisis (“GFC”) served to remind us that the global shift towards defined contribution systems has resulted in lumbering members with market, inflation and longevity risk.

A side effect of Australia’s long-term love affair with superannuation (combined with a 20 year bull market prior to the GFC) has resulted in a system dominated by account based products with limited tools for members to manage these risks, exposing them to random events which have the potential to disrupt even the best laid retirement plans.

Further, as with much of the western world, Australia is afflicted with the challenges of an aging population (the productivity commission estimates that the proportion of the population over 75 will rise from 6.4% to 14.4% from 2012 to 20602).

Consequently, over recent years there has been an increasing focus on the needs of Australians approaching and entering retirement. With the Cooper review and Financial Services Inquiry both committing substantial resources to the needs of superannuation members in retirement, these challenges are increasingly being viewed as a vital element of public policy that will need to be dealt with in order to ensure the long-term sustainability of the system.

From a commercial perspective, these factors have created what many might view as a perfect storm for the development of guaranteed products designed to provide members with confidence when it comes to their expectations regarding preservation of capital or income. However, despite a limited number of products emerging over the last decade, they have yet to go beyond niche market status.

The remainder of this article will explore this phenomenon and whether this is simply a matter of poor timing or representative of something more systemic.

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