Manulife IncomePlus is a Guaranteed Minimum Withdrawal Benefit (GMWB) type of variable annuity product aimed at people who are about to retire or in their early retirement years. It guarantees an income stream for the lifetime of an annuitant and a withdrawal balance and comes with a reset feature that could potentially increase the balance (and the income stream) based on the performance of an underlying fund. This Manulife brochure offers examples of how the product works.
IncomePlus has become very popular, attracting more than $5 billion in deposits since its launch about two years back. The downside protection offered by minimum withdrawal guarantees and the upside potential offered by market growth (and, it must be mentioned, hard sell by financial advisors) could explain its popularity. Other providers such as SunLife and Desjardins have launched similar products.
It is hard to see how these products are better than low-cost, diversified portfolios that have a large fixed-income component suitable for someone at or near retirement considering that the income stream is not indexed to inflation. The fees for these products are extra-ordinarily high: a 0.25% to 0.75% fee for IncomePlus in addition to a MER in the range of 2.75% for the mutual funds on offer. Does anyone believe that the upside potential of market growth will amount to much when paying 3.5% in fees every year? Why then are advisors pushing their clients to buy these products?
