Manulife’s Group IncomePlus is unique among retirement products and is expected by many to take the industry by storm. But steep fees have some consultants saying it’s too expensive.
Launched in mid-June, Group IncomePlus is based on Manulife’s highly successful IncomePlus GIF Select retail product and offers plan members an investment option based on a single balanced asset-allocation fund. Members contribute to a guaranteed benefit base which allows for an upward adjustment for market growth on an annual basis, called a “step-up.” Upon retirement the investor is eligible for a guaranteed annual income amount of 5% of the guaranteed benefit base.
Consultants and advisors who have attended Manulife’s product presentations are generally upbeat on everything except the fee. At 45 basis points, many feel that it’s too high. “Essentially, this is a life insurance premium that you’re paying with the 45 basis points,” says Jean-Daniel Côté , a principal at Mercer’s Montreal office. “So you’re guaranteeing that you won’t run out of money, but by doing that you’re cutting down the upside of what you could do were you to invest in a non-guaranteed product. We suspect that it’s probably rather fat in terms of fees.”
Mike Collins, vice-president, group savings and retirement services at Manulife, says the fees are straightforward, and that larger groups will tend to have lower rates. “The costs are attached to the investment, and it’s a guarantee fee that’s added on, so in our case we’ve used one investment that we’ve put the product on, and that’s our asset allocation balance fund, because it’s multi-manager, multi-mandate. We want to start the product off where people realize that this is not about investment diversification, but about income diversification while you’re in your accumulation phase.”
“The good news is it’s a lot cheaper than similar products in the United States, which are 100 to 200 basis points,” says Zaheed Jiwani, a senior investment consultant at Hewitt Associates in Toronto. “However, while it’s cheaper, we’ll have to look at how much retirement savings is eaten away by the fees and determine the best strategy for our clients.”
In terms of uptake, while Manulife is expecting a significant response, others are not convinced. “We’re unsure as to what’s going to happen with IncomePlus as a group product,” says Côté . “But I don’t think it will be hugely popular. My recommendation for a sponsor at this point would be sit and wait, because the price is going to come down, and they’re likely to offer it to a wider choice of funds.”
Jiwani agrees, and points to the availability of target-date funds which are familiar to plan sponsors. “Plan sponsors will be slow to pick it up, but like target date funds, Canadians will take some time to get acquainted with the product.” He suggests the market position currently enjoyed by Manulife may give their competitors time to fine tune their response. “Other providers will be watching what happens to Manulife and will have the advantage of tailoring their product along the lines of consumer reaction,” Jiwani says.
Both Standard Life and Sun Life have indicated that similar products are in the works
“I think the uptake will be significant, for the same reasons that it’s been significant on the retail side,” says Greg Hurst, a principal with Morneau Sobeco in Toronto. He suggests that plan sponsors will look at Group IncomePlus as a good possibility for a default investment option. “I think it will give comfort to DB plan sponsors who may be thinking of moving to DC but are worried about the loss of the guaranteed income aspect of DB. ”
Still, industry experts are pleased to see increased attention being paid to the decumulation phase of retirement. “It’s good that we have something like this that focuses on the income aspect,” says Jiwani. “In the past, everything focused on the accumulation side, and not enough on the decumulation side.”
Côté agrees, explaining that much emphasis has recently been put on accumulating assets, but as the industry matures and more people in begin to retire on defined contribution plans rather than on defined benefit plans, there is a need for improved products that will provide both flexibility but also a lifetime income guarantee.
Jiwani also hopes that this product serves as a step towards a comprehensive retirement solution that bridges the accumulation and decumulation phases. “Target-date funds did a great job of addressing some of the flaws of the accumulation stage and how people’s risk tolerance change over time, but now that you’ve got this decumulation product you need to link them,” he says. However, he’s not expecting such a product anytime soon. “I don’t know what the timeline on something like that would be, but we’re still a ways away.”
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