Almost three years since inception, the Ralph Stewart-led variable annuity business, Lifetime Income Ltd (LIL), opened for applications last week after earning its final regulatory badge from the Reserve Bank of New Zealand (RBNZ).
The RBNZ handed LIL, which mixes a fund structure with an insurance component, the country’s first variable annuities licence following a lengthy consultation process and formal financial strength assessment (completed early this month).
According to the Lifetime Income Fund (LIF) investment statement, on December 6 this year global rating agency AM Best classified LIL as B- (or ‘fair’) for financial strength and bbb- (non-investment grade) under issuer credit measures.
“The rating reflects LIL’s position as a brand new insurer with no new business,” the investment statement says.
In a statement, Stewart said the firm would begin issuing units in the LIF on December 11 with the first tax-paid income installments due on January 16 next year.
LIF (issued by Lifetime Asset Management – or LAM) offers a guaranteed income for life to investors aged over 65 with the ability to defer payments. Under the current terms, LIF annual income drawdown rates (which are paid fortnightly or monthly) range from 5 per cent for 65-69 year-olds to 6.5 per cent for those aged 80-85.
While the lifetime income guarantee is provided by LIL in exchange for an annual 1.35 per cent premium deducted from member accounts, the LIF has two investment pools – a balanced fund and a cash fund.
With an asset allocation of 47 per cent growth and 46 per cent income, the LIF balanced fund invests into a range of Vanguard global passive funds, the NZX/S&P10 index as well as the Harbour Asset Management NZ Short Duration Fund. Global actuarial firm, Milliman, which advised on the LIL structure, manages the final 7 per cent of the LIF balanced fund with a risk overlay.
The LIF cash fund, which funnels income to investors as well as paying insurance premiums and fees, invests solely into the ANZ Wholesale Cash fund.
In addition to the 1.35 per cent insurance premium, the LIF incurs annual investment management fees of 0.7 per cent, administration fees of 0.17 per cent and trustee costs of 0.08 per cent.
LIF will also charge an early withdrawal fee of 1 per cent (applicable only within the first three years of the initial investment) and 0.25 per cent transaction costs on investing or withdrawing funds.
Advisers may also charge LIF investors independently-negotiated fees.
MMC has been appointed administrator to LIF while Public Trust performs trustee and custodial duties.
Both the insurance firm, LIL, and asset management arm, LAM, are subsidiaries of Retirement Income Group (RIG), which is about 70 per cent owned by Stewart, according to the latest Companies Office documents.
As well as Stewart, RIG (and associated entities) directors include: chair person, Diana Crossan, former Retirement Commissioner; high-profile financial adviser, Martin Hawes; Graeme Mitchell, current CIGNA Life and National Provident Fund board member; Timothy Paris, US-based actuary; John Strahl, ex DLA Phillips Fox partner; and, Rhys Gwilym, RIG chief operating officer.
Gwilym said LIF applications had already started to come in and would begin to be processed this week.
“There’s a good demand from advisers,” Gwilym said. “We decided to launch to the industry first but will do a more consumer-oriented release next year.”
In a statement, Stewart, currently offshore, said: “We are very grateful for the help we have received from the advisory community, professional services firms, the Reserve Bank, Financial Markets Authority and IRD.
“Without exception, everyone that we have encountered in establishing the Lifetime Income Fund has understood the significance of providing financial security in retirement and have given us their support.”