The prospect of a guaranteed investment vehicle has gained massive appeal among investors in the aftermath of the financial crisis, and Sun Life Financial’s Group Retirement Services division (TSX:SLF) has created a product that offers this popular feature to group plan members.

The firm has launched ‘my money for life,’ a guaranteed retirement income solution that offers both insurance coverage and investment growth potential to group plan members. The product targets baby boomers who are becoming increasingly concerned about whether they’ll outlive their savings in retirement.

Nearly two years of research and development went into the creation of the product, as Sun Life worked to understand the needs of retirees. In a survey of pre-retirement group plan members age 50 to 65, Sun Life found that respondents were very concerned about having enough savings in retirement.

“Over half of them believe that they will have to delay their retirement and work longer,” said Kevin Dougherty, president of Sun Life Financial Canada, speaking at a launch of the product in Toronto on Wednesday. “Over half of them also believe that retirement won’t be nearly as good as they had hoped.”

The survey also found that more than 70% of pre-retirees would like at least some of their retirement income guaranteed.

“The boomers are really marching, every year, into retirement, and they’re faced with this question of how to make their assets last for the rest of their lifetime,” said Dougherty.

‘my money for life’ is an optional feature that plan members age 45 to 75 can apply to all or some of the group plan investments held in a Registered Retirement Savings Plan, a Defined Contribution Pension Plan, Deferred Profit Sharing Plan, and Registered Retirement Income Plans.

How it works

The way the product works, the initial amount, plus any future contributions, makes up the Benefit Base. The annual income guarantee is equal to 5% of the Benefit Base and is payable annually for life starting at age 65, with no waiting period to receive income.

The annual income guarantee will never decrease as a result of market declines, since the Benefit Base is reset every three years — on the member’s birthday — to capture and lock in any increases in market value. If the market value is less than the Benefit Base, no adjustment is made.

The new product will likely be particularly appealing to defined contribution pension plan members, according to Dougherty.

“We’re at a real tipping point in the history of DC plans, where up until this point, for the most part, plans have all been about saving and accumulating assets,” he said. “The next phase is all about turning these savings into income streams for retirees. For plan members, this is top of mind.”

Dougherty said it’s important for financial advisors to be prepared to offer clients solutions to this growing concern about retirement income. “Plan members are going to be looking to their advisors to solve this problem,” he said.

Fees associated with ‘my money for life’ are competitive with retail products that offer similar types of guarantees, according to Dougherty. “The total MER would be very competitive with any kind of retail product,” he said.

Other features of the new product include flexibility for plan members to keep most of their existing group plan investment options; the option for plan members who are leaving their employer to maintain coverage; and the ability for plan members to leave a legacy, with any remaining assets at the time of the member’s death paid to the spouse, named beneficiary, or estate.

IE