More retirement agility

Liberty product tsar David Lloyd might look as if he has just stepped out of an episode of Starsky & Hutch, but he has done a lot to rejuvenate the company’s product menu. He favours macho names such as “Bold” and “Agile” and, to be fair, he has helped Liberty recover some ground.

The Agile retirement annuity was recently updated, and it set the bar a little higher than before. As well as the guaranteed retirement income, it has a high-water-mark guarantee. I wish other Liberty products, such as its Evolve endowment, offered this too.

Investors know that if they opt for the high-water-mark benefit, at a oneoff charge of 1% for five years, their annuity will never fall below 80% of its maximum value. The guaranteed retirement income remains a useful feature of Agile. For every R100,000 you invest you might get, say, R2,000/month of income. The downside is that its Exact Income Fund is suitable only for members planning to buy a fixed annuity — which has no inflation protection.

I understand other life offices can design guaranteed income products on demand —at least in theory. I like the idea of mixing the Exacta (not the kind you find in Turffontein Racecourse) with regular market-linked funds, and adding the high-water-mark guarantee where appropriate. You can remove and reinstate the guarantee at will, but I don’t advise such crude market timing.

Mark Lapedus, Liberty’s investment products actuary, says profit sharing kicks in at 13%, and Liberty takes 25% of any return above this. It is hard to remember when we last had a year with a 13%-plus return, but they do come around. Liberty would have had some nice fat-cat returns in the year after the global financial crisis.

But the life office is going back to its roots — its core investment product used to be the 90/10, in which it would share in 10% of the downside and the upside of the portfolio.

Today it subsidises the downside by topping it up when it falls below 80%. It shares 25% of the upside, but only after the hurdle of 13%.

Broader options

The good news is that investors are not restricted to in-house Liberty and Stanlib products, which have had lacklustre performance over the past five years. Eight funds offer the guarantee, from four fund houses: Allan Gray, Prudential, Coronation and Investec. They are all multi-asset funds.

Lapedus says the high-water mark gives the opportunity to investors who might only be comfortable in a stable fund to invest in a higher-risk balanced fund. In the long run they would have a much better chance of achieving their retirement goals. In fact, Lapedus says many investors see stable funds as too risky, as they can invest up to 40% in shares. So the guarantee might persuade clients to get out of the illusory safety of money-market portfolios.

I wouldn’t be surprised if many in the legacy Liberty retirement annuity move to Agile. It has some nice, clearly spelt-out guarantees. I prefer this approach to the paternalistic smoothedbonus policies at Old Mutual, in which the client’s options are constrained: the penalties for coming out of smoothed bonus early or when markets are down are severe. In effect, the entire risk is passed on to the client.

In principle clients who have, say, 30 years to go, can ride the market cycles. But now that it is easy to keep in touch with portfolio values daily, finding a way to limit losses is desirable.

Agile isn’t enough on its own to turn around Liberty, but at least it is helping to build credibility again in its core affluent market.

Investors are not restricted to in-house Liberty and Stanlib products, which have had lacklustre performance