Retirement Income Group, which offers the Lifetime variable annuity product in New Zealand, is nearing its fifth birthday and is expected to have $400 million of funds under management by September.

It offers a product that pays a set percentage of invested capital for life, with an insurance component covering the longevity risk.

Director Tim Paris, a US actuary and chief executive of RUARK Insurance Advisers in New York, said part of the work Lifetime had had to do was to change the perception of what an annuity was.

“An annuity is a loaded term in a lot of ways,” he said.  “Traditional annuities are highly sensitive to interest rates. There’s a perception issue that individual savers of financial advisers have, that those products are difficult to sell in a low interest rate environment. But offering an income guarantee is a different market dynamic that appeals to retirees, savers and financial advisers.”

He said the idea of a lifetime product with an insurance component was increasingly resonating with people. “You’ve saved your money for decades, how do you use that effectively in retirement?”

Lifetime’s challenge was to grow the market in New Zealand when it was a new company with no other product like it in the market.

Financial adviser Liz Koh, who distributes the Lifetime product, said it suited people who didn’t want to have to worry about structuring their investments to create a set level of income or who were worried about running out of money.

In this case, a low-interest rate environment helped boost the product's appeal -  Lifetime’s offer of 5% a year seemed a good option for many investors, she said.  “They’re getting their capital returned as well. It’s a way for people to realise they have to use their capital to provide income. Gone are the days when you could use your returns from investments, you’ve got to use capital as well.”

With a more standard manged fund investment people tried to preserve capital but it was common to set them up so that there was a set amount of drawings each year regardless of the portfolio returns.

Founder Ralph Stewart said Lifetime had more of a mix of products than had been expected when it first launched: It now offers life annuities, fixed annuities and unit link business, some pension transfers business, and some super.

Other annuity providers are believed to be eyeing the New Zealand market.