Retirement: the business opportunity

Singapore

TAN Wee King, 59, is a financial planner's dream: debt-free, low- spending, comfortably drawing multiple streams of income - and happy to outsource money matters to someone else. (see infographic)

The former nurse trainer already has a number of retirement-related insurance plans. She bought another one this year, putting S$30,000 into a Great Eastern annuity that will start paying her roughly a guaranteed S$260 a month and a non-guaranteed S$80 a month five years later. The income stream lasts 10 years.

"It's not meant for maintenance," she says. "Just a little bit extra if I want to go for holidays."

She adds: "I'm one of those people who - once I pay the money, it's counted gone. But when I start getting returns, it's - woo! - a pleasant feeling."

Madam Tan is in a demographic bracket that is drawing the attention of Singapore's insurers, banks and fund managers: the 600,000 individuals in their 50s, and another 320,000 aged 45-49 as at June 2013. Almost four in five are still working.

Born around the time of Singapore's Independence in 1965, many have accumulated money in their Central Provident Fund (CPF) accounts and plenty of cash in the bank. They are prime targets for income- centric funds and insurance plans, especially when worries about being able to retire comfortably flare up.

"Last year, almost half of our new business came from retirement products," said Lance Tay, chief executive of Tokio Marine Life Insurance Singapore. "People buying our retirement plans are in their late 40s and early 50s," he said.

Going by an industry sales measure, Tokio Marine's annual premium equivalent (APE) for its retirement products as a percentage of total APE grew from just 8 per cent in 2011 to a whopping 45 per cent in 2013.

Eastspring Investments, the investment arm of insurer Prudential, launched its Monthly Income Plan fund in 2005. It had total assets under management (AUM) of just S$158 million at end-2010. That almost tripled to S$431 million the following year; then almost doubled to S$805 million at end-2012; and, as at end-October this year, hit S$1.4 billion.

Manulife Singapore president and CEO Naveed Irshad said that he is targeting the "bulge" nearing retirement.

ManuWealth Secure, an endowment product with an income feature, launched in mid-year - and instantly became Manulife's top-seller. From its June launch till September, sales exceeded internal targets by more than four times, with more than 700 policies sold. "This is not typical of a new product," said Mr Irshad. "Usually, it takes a little bit more time. This one was quick."

Around the world, the retirement business is picking up. Companies can no longer afford generous defined-benefit (DB) plans, but are switching employees to defined-contribution (DC) plans instead, where employees bear investment risks and have to seek advice.

In a radical move, UK savers will be given complete freedom over how they spend their pension money from next April instead of being forced by the government to buy annuities. American financial services firm Fidelity launched a new retirement service there in July to compete with pension fund companies for a slice of the pie.

Said Julian Webb, Fidelity's head of DC and workplace saving: "We have an important role to support customers as they plan for retirement, and increasingly during retirement, offer more flexibility so they can continue to invest in the market."

Other fund companies are trying to encourage conservative investors to jump in. In the West and in parts of Asia including Singapore, populations are ageing. Risk-averse investors continue to keep large amounts of cash in the bank, even as global interest rates stay low and hurt returns.

BlackRock, the largest asset manager in the world with US$4.5 trillion of assets under management, launched a worldwide marketing campaign in October with the slogan: "So what do I do with my money?" In Singapore, BlackRock has blanketed Raffles Place MRT with its ads. "Hopefully, because we're supplying all that information, research, and knowledge, they will invest in us," BlackRock's co-founder and president Rob Kapito told The Business Times in an interview published last Saturday.

The market to manage money for current and future retirees is widely fragmented. However, industry players say there is still room to grow. Jim McCaughan, CEO of Principal Global Investors, which manages about US$320 billion, said: "Part of our strategy, based on demographics, is to have a suite of income-producing assets." Income-generating assets will remain attractive because the low-interest-rate environment is here to stay, he said.

On the insurance front, insurers are competing by tweaking product features. They are "levers" an insurer can manipulate to vary how much income they guarantee, how much upside they can provide, and how easy it is for the policyholder to withdraw the money, said Manulife's Mr Irshad. "I see a lot of innovative products coming out that provide for flexibility and customisation," he said.

But every insurer interviewed highlighted how low interest rates are a threat to their business model. Workers too, ultimately, face tradeoffs even as they live longer and pension schemes are pressured.

Prime Minister Lee Hsien Loong, in a Facebook post last Wednesday, referred to a column in The Economist magazine, saying: "There are only three solutions: people must either live on less in retirement, work longer and retire later, or save more of their salary while working . . . These are tough choices that countries - not just Singapore - are facing."

Those like Madam Tan do not worry. Besides drawing a civil service pension, she still works at a hospice four days a week. And she and her husband continue to live in the first flat they bought in 1980 - paid off "a long time ago".

"We live quite simply," she says contentedly. "We have a habit of living within our means."

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