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Guaranteed Minimum Withdrawal Benefit products entered Canada with a bang, twisted through a few snags related to underlying pricing assumptions and now are cruising along as accepted components of client portfolios for those close to retirement.

So, what’s next?

Paul Lorentz, President of Manulife Investments, notes a great deal of research went in to the original planning of GMWB products prior to their introduction in Canada.

So, to get a handle on what the next decade might hold, Manulife returned to the research fold to conduct a study into Canadian attitudes towards income guarantees, and what keeps investors up at night.

The standout numbers show 80% of respondents saying they want some form of guaranteed income upon reaching retirement, and that fewer than half of Canadians surveyed were happy with their current state of their retirement planning.

Lorentz says the research shows a mind shift among people nearing retirement, with Canadians placing less emphasis on trying to outperform the market and capture upside, and more focus on capital preservation and protecting themselves and their families against downside risk.

“It reconfirmed that guaranteed income products resonate with consumers and really fit with where their minds are,” he says.

The commissioned study by Investor Economics, which also looks at how the guaranteed product space can be expected to evolve, places the current market at $65 billion and predicts it could reach $230 billion by 2020.

“This seems like the time for these types of products,” Lorentz says. “It resonates with consumers, and really is an opportunity to grow this market.”

Market evolution

The key drivers of client uptake, of course, are the current state of equity markets and other factors impacting consumers’ perception of risk.

“You’ve got real uncertainty in the equity markets. You’ve got interest rates that have fallen really low, and are expected to stay there for awhile, and you’ve got individuals who are losing access to defined benefit plans,” says Lorentz. “So there really isn’t a good source of guaranteed income available for a lot of individuals in retirement.”

And, in the face of recent market losses, consumers are placing more emphasis on capital preservation. Taken together, those factors virtually ensure products offering predictable income will be around for a long time.

What will change, though, is the range of product offerings. Lorentz expects them to broaden, with more plain vanilla products entering the market for those who are simply looking to protect against long-term downside risk for their post retirement income plans.

Down the road, products will become less bundled and consumers will pay for the features they value. Particularly in today’s markets, certain options come at a price, so customers would be able to make menu choices based on their own weighting of need over cost. 

“It’s a question of what the consumer wants,” says Lorentz. “Today you buy a product that has it all, so you might see some variation in that in terms of more selection.”

These structural changes will highlight the value of advice, because clients will need to be walked through the options—creating an opportunity for discussions around planning and future needs. Advisors still need to be in play to ensure allocation is done correctly.

“Every consumer is different in terms of their retirement plan—what they want in income; how much they want,” says Lorentz. “And I think what we’re starting to see is that when the mix of products, or the product allocation, really is tailored to the individual it can help improve that certainty of guaranteed income.”

Next page: Expanding the client base

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