|Sun Life Financial may be the second player to launch a group guaranteed withdrawal benefit product, but it is the first to offer nearly 200 investment options. By comparison, Manulife Financial’s Group IncomePlus is linked to only one balanced fund.|
Sun Life says that participants in defined contribution (DC) plans can keep most if not all of their existing investment options when they switch over to the my money for life guaranteed withdrawal benefit option. Yet the insurer does require that 40% of accounts consist of fixed income securities. The account is automatically adjusted every month to preserve the asset allocation the participant selects.
The insurer anticipates a high transfer rate, especially if the product is explained properly to members and if this communication campaign is backed by the plan sponsors and consultants. “We expect a 100% [participation], not for all members but those age 45 and over, because they are closer to the retirement corridor,” says Tom Reid, Senior Vice-President, Group Retirement Services at Sun Life.
Sun Life should attain this goal in the coming years, as participants get to know the product better, Mr. Reid continues.
For its part, Manulife does not plan to expand the investment options in Group IncomePlus, which currently offers a multi-manager multi-strategy balanced fund. Two hundred investment choices in a group guaranteed withdrawal product is too many, contends Mike Collins, Vice-President Marketing, Group Savings and Retirement Solutions at Manulife. “It adds complexity for people who don’t have direct access to advice,” he points out.
Mr. Collins prefers to focus on simplicity: one diversified fund. If they are faced too many investment choices, members may become paralyzed and unable to make investment decisions within their plan, he adds.
Meanwhile, Brent Simmons Vice-President Actuarial at Sun Life explained the insurer’s thinking behind offering so many choices. “Our plan sponsors and plan members spend a lot of time carefully choosing their investment funds. During our focus groups with them, they made it clear that they preferred a product that would cover as many of these existing fund choices as possible (as opposed to requiring them to revisit their previous investment fund decisions). We took this feedback to heart and designed my money for life to include close to 200 investment funds."
Mr. Simmons spent a year and a half designing the Sun Life product. He told The Insurance and Investment Journal that the product is priced to combine affordability and good risk coverage, he explains. “We came out with a well priced product that will allow us to keep our promises on a product that will be around 30-40-50 years from now.”
The fees on the products are about 1.5% depending on the asset category under guarantee, Mr. Simmons says. There are also insurance charges on top of the management fees. These may change, in which case Sun Life promises to give its clients prior notice.
The product offers a guaranteed withdrawal for life of 5% per year, which members can receive starting from age 65. Annuitants can opt for a higher or lower amount. For amounts above 5%, the excess withdrawn will decrease the guaranteed base.
Sun Life calculates this base according to the value of the member’s initial contribution and subsequent contributions less withdrawals. The base may increase following automatic resets, which are done every three years on the member’s birthday.
Another detail, common to all guaranteed withdrawal benefit products in the market: clients can withdraw more from their fund if the legal minimum withdrawal foreseen for the RRIF is higher than 5%. This excess will not affect the guaranteed benefit base.
Insurance cost for Sun Life’s my money for life product
Source: Sun Life