Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
By Linda Koco
A review of recent annuity debuts suggests that the ballgame certainly isn’t over where new annuity development is concerned. That should be of interest to annuity professionals who have been worrying about a lack of new products until interest rates and the economy rebound.
In the past few weeks, a number of annuity carriers have brought out new annuity contracts or features that are geared toward meeting the needs of retirement-minded customers. This is happening in both the fixed and the variable markets.
Gone is the glittering talk about better-than-CD interest rates and tantalizing retirement income rollup provisions. The new products offer detailing that is conservatively modern in a post-recessionary kind of way, but the focus on retirement is unmistakable.
Frankly speaking, the carriers want to hit retirement home-runs.
Leon LaBrecque, who is CEO at LJPR in Troy, Michigan, believes thinking is changing on product-focused transactional sales. “The old annuity approaches won’t work anymore,” he explains.
As a registered investment advisor, his firm is treating annuities as an asset class, particularly for those in seeking retirement solutions, particularly guarantees and income.
“We recommend annuities when the client wants something that stabilizes retirement income, or that guarantees interest for accumulation purposes,” LaBrecque says. “We treat annuities as part of the solution, not just a product to sell.”
The work is advisory-focused, not sales-focused, he adds, and the annuity advice his firm provides is geared toward retirement needs rather than accumulation.
The new annuities that are coming out seem to reflect that. Even though the carriers are different, and the product types are different, the group-think is just going in that direction. A few examples follow.
One example is ATHENE Benefit 10, fixed indexed annuity from Athene Annuity & Life Assurance Company, Greenville, S.C., that has an enhanced benefit rider offering up to five benefits, all funded by a benefit base account.
Here’s the point: The five benefits are keyed to retirement concerns. They include a guaranteed lifetime withdrawal benefit for a retirement income stream; a 50 percent enhancement on income in event of inability to perform two of six activities of daily living on a permanent basis; a five-year payout of the rider’s benefit base if the client experiences long-term care confinement or terminal illness diagnosis; and a death benefit if money remains in the benefit base account at the time of the annuitant’s death.
Because it’s an indexed annuity, the contract does include two indexed accounts. Both link their interest crediting to the S&P 500. But it also offers a fixed account with a five-year guaranteed rate, a nod to those who want both retirement benefits and guaranteed growth. There’s a 6 percent premium bonus, too, which vests over 10 years, and the enhanced benefit rider includes early income bonus of up to 10 percent if the person begins lifetime withdrawals before the eighth contract anniversary.
Another example is a deferred income annuity (DIA) from Massachusetts Mutual Life called MassMutual RetireEase Choice. The policy is a flexible premium contract that guarantees a specific amount of future income.
The payouts can start as soon as 13 months after issue. But the carrier says the policy is really designed to help meet the predictable income needs several years hence. In other words, this is a product for the advanced retirement years, folks.
Unlike traditional deferred annuities, this annuity provides no contract value or withdrawal provisions. But in return, the policy can guarantee a higher income amount at time of purchase payments than can traditional deferreds, the company says.
That’s a trade-off some consumers are apparently willing to make. Sales of DIA products were up about $47.3 million, or 30.4 percent, from first to second quarters of this year alone, reports the Fixed Annuity Premium Study from Beacon Research.
The carriers reporting to Beacon produced more than $202.6 million in second quarter sales compared to $155.3 million in first quarter, says Judith Alexander, director of sales and marketing at Beacon. Those numbers do not represent total DIA sales in the U.S., she adds, because not all DIA issuers are yet reporting DIA sales separately from income annuity sales.
New York Life has reported that its own DIA, the Guaranteed Future Income Annuity, has taken in more than $500 million in premium in the first 12 months since the product’s introduction in July 2011.
Incidentally, at least eight carriers offer such a product, according to Beacon. That’s up from four last year.
As this was being written, Northwestern Mutual unveiled a DIA called the Select Portfolio Deferred Income Annuity. It offers growth potential through dividends, the Milwaukee carrier says, adding that the product address three retirement challenges — running out of savings due to longevity, the impact of inflation on purchasing power; and market changes that can reduce the value of a nest egg.
“I wouldn’t be surprised to see more companies introduce a DIA,” comments Alexander. “They are a lower risk way to capitalize on the demand for guaranteed retirement income than variable annuities or fixed indexed annuities with guaranteed living benefits.”
A sampling from product initiatives on the variable side of the industry shows a similar retirement focus.
For example, Lincoln Financial Group just added Risk Portfolio Management Funds for its Lincoln ChoicePlus Assurance variable annuity products.
The purpose is to complement portfolios and provide “a less risky approach to investing, while potentially enhancing variable annuity guarantees and seeking to maximize income,” says John Kennedy, head-retirement solutions distribution for Lincoln Financial Distributors.
That should help “reinforce the goal of meeting specific retirement needs,” he adds.
Meanwhile, Allianz Lifesays it is offering a new variable annuity through the Wells Fargo Advisors’ Asset Advisor Program. It, too, is a retirement focused contract, starting with the name — the Allianz Retirement Advantage Variable Annuity — and going on through the options.
The account choices have varying levels of protection, guarantees, and investment options all designed to complement a retirement portfolio, the Minneapolis carrier says.
Worth noting: According to the company, the policy is designed exclusively for professionals working in the advisory services market. That message resonates with LaBrecque’s comment earlier, about how annuity approaches and thinking are changing toward providing retirement advice, not product sales.
The Wells Fargo program has a minimum account size of $75,000 and is not designed for excessively traded or inactive accounts.
Prudential Annuities is in the new rollout group, too. Some might not think so, because the Newark, N.J. carrier recently made news for suspending sales of various living benefit features in its variable annuities. But what got lost in the hub-bub is that the company also introduced a new variable annuity benefit, the Highest Daily Lifetime Income 2.0, around the same time as it was suspending sales of the other benefits.
Like earlier versions of this optional living benefit, this version allows policyholders to lock in the highest daily value of their annuity contract for retirement income purposes each day the market is open. But it also includes a new death benefit that locks in account highs daily. The dual focus makes it a feature suited to people interested in legacy planning as well as retirement income, the company says.
Then there is New York Lifeagain. The company recently launched a variable annuity called the New York Life Income Plus Variable Annuity. The contract is retirement-and-guarantees driven too, in that it offers an optional rider that guarantees a future lifetime income stream. The payments under the rider can begin on a date of the client’s choosing.
If that sounds familiar, it is. The optional rider — called the Guaranteed Future Income Benefit Rider — is an echo of the company’s aforementioned DIA, the Guaranteed Future Income Annuity, which, as noted above, has been selling at a fast clip since its debut last year.
But the variable annuity rider has some differences. For instance, those who buy it will get a minimum level of guaranteed lifetime income payments in the future, as with the DIA, but unlike the DIA, the income payments can be increased if markets perform well.
By the way, the company says the income payments under the rider will never decrease due to negative market performance. (That makes the rider sound a bit like a fixed indexed annuity, with its upside potential and downside guarantee. It’s not an indexed annuity, of course, but it could be positioned as an alternative by an enterprising competitor.)
Another difference: The carrier says its DIA product is for pre-retirees with guaranteed income later. Meanwhile, the new VA with rider is designed for pre-retirees who want guaranteed income and the pursuit of more through participation in the market.
Give it some time
It will take advisors a while to sort through the new offerings that are coming out. The products mentioned here have a number of features that may be new or altered from one-time industry standards. In other products, there may be new forms of complexity, with different limits and conditions from years past.
And while some new products are replacements for older versions, now withdrawn, others are new designs built with today’s strained economy in mind.
Sometimes there will be distribution surprises, too, as with the announcement from TD Ameritrade Institutional, a brokerage and custody service for fee-based, independent registered investment advisors, that it is now offering access to a full range of competitively priced fixed and variable annuities from several national insurers.
But advisors can at least take comfort in knowing that the annuity market is not shriveling into pieces. It’s changing but it’s still active and the carriers are still offering products.
Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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