Depending on the type of annuity, an annuity can provide your clients with the following benefits:
- regular payments for a fixed term, or for life;
- potential improved Age Pension outcomes such as an increase or the ability to access the Age Pension for the first time when investing in a lifetime annuity;
- protection from key retirement risks like outliving retirement income;
- flexibility to withdraw and be paid a lump sum if their circumstances change over life expectancy or term;
- cash flow certainty that can help maintain their standard of living and provide peace of mind; and
- control over estate planning.
We understand that this is a question that your clients may have concerning their choice of where to invest their hard-earned money in retirement.
When most people ask this question, they are generally referring to Challenger Limited, the ASX-listed company. It’s important to understand that Challenger annuities are provided by Challenger Life rather than by Challenger Limited.
The assets of Challenger Life that support the annuity payments are held in a separate statutory fund. These assets are unaffected by the share price of Challenger Limited.
Challenger Life (and any investment it makes in relation to the statutory fund) is regulated under the Life Insurance Act and the prudential standards made under it. Compliance with these requirements is supervised by the Australian Prudential Regulation Authority (APRA) to ensure we are able to meet our obligations to investors now, and in the future.
We are also required to hold enough capital within each statutory fund to withstand a significant shock event. So even if an unfortunate financial event occurs like a significant share market or property crash, your client's annuity payments out of that statutory fund will still be made.
We have a number of measures in place and actions we will take if our capital falls below the minimum amount required to ensure the security of annuity payments. APRA is also authorised to take action if our capital falls below the minimum amount required in order to safeguard the interests of our annuity customers.
If we achieve investment returns that are above the amount required to cover the promises made to our annuity investors, we keep the excess amount. This is how Challenger makes a profit. If we do not achieve investment returns that are sufficient to cover all promises made to our annuity investors, we cover the shortfall from our own money.
Challenger Life holds significantly more capital in the fund than the APRA minimum. So even if an unfortunate event occurs, or there is a significant share market or property crash, our customers’ annuity payments will still be made. In fact, we aim to hold between 1.3 times and 1.6 times APRA’s minimum requirement no matter the market environment.