Optimum Pensions has launched the Real Lifetime Pension (RLP), a lifetime income stream solution specifically developed to address longevity risk.
The product is developed for superannuation funds and life insurance companies, and aims to deliver members a solution to longevity risk that can be offered alongside an Account Based Pension.
A member can choose the same, or similar, investment choices that they may already have for their Account Based Pension and the RLP is designed to deliver better returns than those provided by traditional annuities.
Longevity risk is re-insured with one of the world's largest reinsurers, Hannover RE, enabling the Real Lifetime Pension to be paid for life.
How does it work?
When a member invests in a Real Lifetime Pension an 'annuity factor' is applied based on their age, whether they have a reversionary beneficiary and whether they choose a death benefit option. Their investment is converted into units of the investment option that they select and their annual pension is determined in units, by dividing this figure by their annuity factor.
A 65-year-old male invests $100,000 and selects the 'Balanced' pension option with a current unit price (for example) of $1.75. He also selects the premature death protection option.
His annuity factor is calculated to be (for example) 15.
His starting pension is therefore calculated as follows:($100,000 / $1.75 ) / 15 = 3,809.53 units per annum
His lifetime pension is guaranteed to be 3,809.53 units per annum for life, no matter how long he lives. In year one this comes to $6,667.