KiwiSaver provider Simplicity has signed a deal with variable annuity firm Lifetime Retirement Income, to provide a new KiwiSaver fund that offers retirees an income for life.
It is launching the Simplicity Guaranteed Income Fund, which members can switch to as they approach retirement.
Then they receive 5% of their final KiwiSaver balance for life, from 65. Lifetime’s insurance product covers the longevity risk.
As with Lifetime’s other products, investors who start taking drawdowns later in life receive a higher percentage of their balances as annual income. When investments do not generate enough of a return, investors’ capital will be used to meet payments.
The fund will be invested with a balanced asset allocation.
Lifetime founder Ralph Stewart said it had always been intended that there would be wholesale and retail opportunities. The deal with Simplicity meant it was the only KiwiSaver provider who could offer the option, he said.
Simplicity’s is a simpler product than the standard Lifetime income product, with different capital protection mechanisms. It can only be used by an individual, whereas those who invest with Lifetime direct can take out an investment as a couple.
Simplicity founder Sam Stubbs said there was a lack of investment options for retirees. They were limited to low-interest rate term deposits or too-risky investments that offered higher returns.
“The payments are designed to ‘top up’ NZ Super, so retirees can meet their regular living expenses.”
Simplicity will charge $30 a year for the fund, plus 1.6% a year, which is lower than Lifetime’s standard fee. Stubbs said it should be expected to drop as the fund achieved economies of scale.
The fund is invested in a balanced portfolio of 3000 investments in 23 countries: 55% is invested in investment-grade bonds and 45% in local and international shares. Investments are managed by Simplicity as well as Vanguard.
Stubbs said a law change was needed to allow those over 65 to move to new KiwiSaver schemes, so that those who were already retired could take advantage of the new fund.