Annuities boom boosts Challenger's results
A BOOM in demand for annuities has led Challenger to claim a commanding position in a transformation of how Australians pay for their retirement.
A BOOM in demand for annuities has led Challenger to claim a commanding position in a transformation of how Australians pay for their retirement.Challenger yesterday reported a 7 per cent increase in its preferred measure of "normalised" net profit for the full year. Challenger's shares rose 17? to $4.67.Yesterday's results showed Challenger's sale of annuities to retail investors grew by 56 per cent, from $933 million to $1.46 billion.Challenger chief executive Dominic Stevens predicted Challenger would increase the sale of annuities by a further 25 per cent this financial year, as a wave of retirees looked to convert savings into reliable income streams."There is a significant and growing amount of money now moving into retirement. The baby boomer demographic currently owns 60 per cent of the funds in the [superannuation] industry," Mr Stevens said."Over the next 20 years these people will be thinking of stable cash-flow income streams and less-volatile [options]."Mr Stevens attributed the popularity of annuities to investors in recent years being confronted by the risk and volatility in the sharemarket.He described the product as "effectively providing very long-term deposits", then paying investors 6.5 per cent interest annually.Challenger makes money on the product by making a return of about 2 per cent to 3 per cent above the interest it pays, or a return of about 8.5 per cent to 9.5 per cent on its investment portfolio.He said a study by UBS showed banks were making a similar return on their portfolios of loans.Challenger has extensively marketed annuities to retail investors based on the security of the returns over a long period.Challenger, whose share price fell to 88? during the global financial crisis, arrives at its "normalised" profit by adjusting the contribution of its investments in line with long-term market performance, rather than the actual experience due to volatility.Its net profit reported in line with statutory accounting standards fell 7.5 per cent, from $283 million to $261 million.