Responding to an aging population’s desire for secure retirement income, Sun Life Financial Inc. of Waterloo, Ont. and Toronto-based affiliate CI Investments Inc. have launched a product that provides a 5% minimum annual retirement income guaranteed for 20 years.

SunWise Elite Plus is similar to Income Plus, launched last fall by Manulife Financial Corp. of Toronto, although the miniumum investment for SunWise product is $25,000, compared with $50,000 for Manulife’s. These insurance products have created a new category in Canada by guaranteeing for 20 years the income produced by a portfolio of segregated funds, rather than guaranteeing the maturity value as with regular seg funds. Both products promise to pay out 5% of the original investment each year for 20 years. If the assets perform well, the term could be extended or the annual income increased. The risk to clients is that they could live longer than 20 years, and if the assets in the plan fail to grow, the income stream will dry up when the guarantee expires.

“The income is guaranteed for 20 years, not for life, and it’s possible that someone could outlive the plan,” says Bhavna Hinduja, an analyst at Morningstar Canada in Toronto.

Sun Life predicts 3.6 million Canadians will turn 65 during the next 10 years. Once they reach the stage of living off their assets rather than accumulating them, they face new financial risks that include outliving their money, erosion of purchasing power from inflation and managing the impact of market fluctuations.

“The product offers a predictable guaranteed income stream no matter what happens in financial markets, and at the same time clients can always access their money and are not locked in,” says Peter Glaab, vice president of individual wealth management at Sun Life.

SunWise Elite Plus was created by offering what Sunlife calls a guaranteed minimum withdrawal benefit as an optional rider that can be added to both new and existing SunWise Elite seg fund contracts of $25,000 or more.

The product comes with a feature that allows holders to lock in gains every three years with an automatic reset mechanism. By locking in a higher level of assets and income, the resets help protect against inflation.

Contract holders may choose to invest in a selection of 47 seg funds, allowing diversification by geographic region, asset class, investment style and portfolio manager. The lineup includes a vareity of leading fund management firms, including CI, AIM Trimark Investments, Dynamic Mutual Funds Ltd., Fidelity Investments Canada Ltd., Mackenzie Financial Corp., RBC Investments and TD Asset Management. Clients can invest up to 90% of assets in equities.

“The guarantee allows investors to feel comfortable holding a substantial investment in equities, and benefit from the long-term growth potential they offer,” says Hinduja.

She notes investors in the competing Manulife product are limited to holding balanced funds in their asset mix, which lowers the growth potential as well as the performance risk.

“A higher equity investment allows a better hedge against inflation, and with the guarantees in place, the client has peace of mind,” Glaab says.

SunWise clients are not required to take out income immediately, and may choose to take advantage of an annual 5% bonus for each year there are no withdrawals, for up to 10 years. It means the client is guaranteed to have 50% more in retirement income once he or she begins the 20-year withdrawal period. The same three-year lock-in feature applies during this non-withdrawal period and could increase assets beyond the guaranteed 5% per year. IE