15 April 2020
Annuity owners, you'll probably live longer
Like Americans up and down the country – and most New Zealanders - Tim Paris is working from home at the moment. The chief executive of US actuarial consulting firm Ruark Consulting had been in lockdown for nearly a month when we spoke.
The groceries are being ordered online, his two high school age children are studying from home and face the prospect of missing this year’s Prom, while Tim is spending his days in online conferences rather than face-to-face meetings.
But the good news is none of his family have COVID-19 and he doesn’t yet know anyone who does. Living in Guilford, Connecticut, a small town of around 20,000 people, Tim is aware that closer to the border with New York cases of COVID-19 are much more prevalent.
“We’re fortunate. We’re healthy, we’ve got groceries, we’ve got all the essentials for being in, and working in, the house,” he says.
Ruark Consulting are experts in the US annuity market, crunching the numbers to reveal how annuity owners use the features in their product in various situations and looking for trends in mortality/longevity and how people use the lifetime income. This information can then be used by companies such as Lifetime Retirement Income (Lifetime) here in New Zealand, and around the world, to better design their products.
Its work digging into the data from past downturns such as the Global Financial and Asian crises have revealed three key things. Firstly, when share markets drop around the world, annuity owners recognise that their lifetime income guarantee is more valuable and are less likely to give it up.
“In these situations, annuity owners tend to surrender their policies at much lower rates as a general rule, so there is a recognition that the thing they bought is more valuable and they want to keep it,” Tim says.
Market drops can also influence when people decide to start taking income from their policies too – often starting sooner.
“As a knock-on effect to keeping their annuities, owners often have a higher likelihood of starting to take the lifetime income, as this is essentially the scenario that the product is insuring against.”
The last - more general - trend Ruark has discovered is that people taking out annuity products actually tend to live significantly longer than those who don’t.
“At the point of purchase, there is a self-selection effect. People that are willing to buy lifetime income annuities tend to do so because they expect that they will live longer. Experience has shown that they do – by as much as a few years, on average.”
As an expert in the annuity market he is pleased to be involved with Lifetime in New Zealand.
“I think what (managing director) Ralph (Stewart) and the team have put together with Lifetime has really delivered on the objective of creating an easy-to-use retirement income product – a sensible investment fund with a simple lifetime income guarantee. By focusing on these most important aspects and avoiding undue complexity, the product is much more attractive to retirees and sustainable for the company, particularly in times of market stress.”