How safe is an annuity?

By MARY HOLM

Q. May I also ask for some reassurance concerning an investment with Tower?

Two years ago my wife and I purchased an annuity at a cost of $46,000 to give us an income of $4500 per year, tax paid. This annuity is guaranteed for 10 years and continues for the life of both partners. The investment statement calls it a Tower pension and the issuer is Tower Corporation.

The promoter is Tower Employee Benefits, a subsidiary of Tower Retirement Investments Limited, and a member of Tower Financial Services group.

The above detail is taken from the Tower Employee Benefits investment statement.

May I say that I am not a past employee of Tower.

We are both very elderly.

My question: Do you think my annuity is safe?

A. Yes I do.

There are pretty strict rules and standards governing Tower Life New Zealand, which runs your annuity, says Richard Baker.

When you gave the company your $46,000, it made long-term investments from which it takes your regular payments.

In the company's constitution, if those investments make surplus returns, it can pay out dividends. "Apart from that, it's not allowed to appropriate life company funds" for any other purpose, says Baker.

Tower Life is audited regularly.

It also assesses itself regularly against the New Zealand solvency requirements issued by the Society of Actuaries, "to ensure the company remains solvent under adverse scenarios", he says.

And - if you can cope with another mouthful - it assesses itself against the capital adequacy standard of the Life Insurance Actuarial Standards Board in Australia.

"That's a more stringent test of the company's financial strength," says Baker.

"We pass with flying colours on all of them."

You and I, of course, have to take Baker's word on this.

But I would be really surprised if skulduggery was going on. It would ruin many careers.

I reckon somebody would blow the whistle.

We can take some comfort, too, from the fact that Standard & Poor's gives Tower Life a rating of A minus.

True, it dropped from A after the recent bad news, but it's still a strong rating.

Still worried?

Baker says he will talk to any Tower client who is concerned about the company's situation.

He can be reached on 0800 486 937.

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