Mercer's LifetimePlus: Income for Life

6 March 2015
Each year the Research team at Canstar assess the innovative business products and services developed by Australian institutions.

Each year we are impressed by the overall level of innovation in this country; this year Mercer Australia has impressed with their groundbreaking retirement investment option: Mercer LifetimePlus.


Canstar caught up with Mercer Australia for a quick Q&A:

Q: Mercer LifetimePlus is a unique product. Where did the idea for the product originate?

A: The ultimate goal of superannuation is to provide you with an income for life, however for years the industry has grappled with how to offer simple, affordable and flexible longevity risk protection.  The idea for LifetimePlus originated from our relentless commitment to achieve this goal.

Add to this the fact we are all living longer: for example, at age 65 a woman has a 50% of living until the age of 91 while a 65 year old male has a 50% chance of reaching age 88. Furthermore 54% of Australians expect to have less money than they need for the lifestyle they desire in retirement.  We wanted to come up with a way to protect more Australians in retirement by offering a solution that provides an income for life and could be offered now without waiting for any legislative change.

The idea came to life as a result of the collaboration of Mercer colleagues and our clients. In particular, one super fund asked us to design a product whereby a retired member could receive an income for life – that is, one that does not run out. In one sense, the solution is like a traditional defined benefit pension; namely that the pension lasts as long as you do. Or to put it another way, the longer you live, the more you receive.  Of course, that also means that some pooling of that risk is required.

At Mercer we have the rather unique “boiling pot” for innovation in this space, with actuarial, investment, legal, financial advice and superannuation expertise, we’ve combined our best thinking and experience to create LifetimePlus. Not surprisingly there have been many iterations of it and we wouldn’t have achieved the end result without feedback and input from some of our clients who are also at the forefront of this innovation.

Q: Unlike an annuity, the LifetimePlus investors essentially collectively self-insure against longevity risk. What makes this a better option?

Mercer LifetimePlus is an investment option based on a longevity pool where members share the risk together.  There is no third party shareholder and no insurance premiums.  An annuity is a guaranteed insurance product for which you pay a premium. There is capital provided by a shareholder to provide that guarantee.  These shareholders expect to receive dividends.  In LifetimePlus, the investors share the investment returns and the mortality credits, arising from those who die early.  This means that the overall return to the investor is likely to better than from an annuity.

Customers can also access their money at any point in time with Mercer LifetimePlus – there is no cliff edge where money becomes inaccessible as there is in an annuity.  Also, Mercer LifetimePlus doesn’t change your investment profile, or in other words your exposure to risk.  Simply put, investors transfer some of their defensive assets within their account-based pension into LifetimePlus.

We believe providing protection by pooling the risk makes sense, it is fair.  The longer you live the more money you will receive.

The Financial System Inquiry final report, released in December 2014, stated that: “Managing longevity risk through effective pooling in a comprehensive income product for retirement (CIPR) could significantly increase private incomes for many Australians in retirement and provide retirees with the peace of mind that their income will endure throughout retirement, while still providing them to retain some flexibility to meet unexpected expenses.”

Q: LifetimePlus is held within a separate allocated pension structure. If a retiree wishes to roll over their allocated pension, will this affect the LifetimePlus investment?

A: If a retiree rollovers from one provider to another with LifetimePlus as an investment option within their account based pension, they will maintain their investment in LifetimePlus. There will be no change. If the new fund doesn’t offer LifetimePlus they will have to take their funds out of this investment option.


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