Are consumers receptive to an in-plan, retirement-income solution?

New qualitative research from Hearts & Wallets reveals fairly positive consumer reactions to a retirement income solution offered within an employer-sponsored retirement plan, with caveats for firms planning to offer such products.

The survey examines a target date retirement fund in employer-sponsored plans, which adds lifetime income as an asset class, starting at age 55 and reaching a maximum allocation of 30%, with the option to convert the annuity portion into lifetime income at the end of the worker’s employment.

“In-Plan Retirement Income Solution”: Consumer Reactions to the Latest Trends in Guaranteed Income Design to Inform Product Enhancements and Reduce Barriers to Adoption is part of the Hearts & Wallets’ Explore Qualitative 2024 series, Innovations in Investment Solutions & Customer Experience Models, explained Laura Varas, CEO and founder of Hearts & Wallets. Each series starts with an emerging theme and collects input from industry leaders on topics that are important to examine within a qualitative setting. The in-plan research was a concept test, which studies products/services recently in the market or that are coming within 1-2 years.

The firm wanted to examine this product concept, which has been recently introduced within workplace plans by firms like BlackRock, Goldman Sachs and JP Morgan, Varas explained. The goals, she added, were to determine the following:

(1) How do consumers respond to in-plan, retirement-income solution features?

(2) What do they specifically like or dislike?

(3) How can these insights lead to product enhancements?

Of course, Varas said, the idea of retirement-income solutions like these also exists outside workplace plans, and these insights may also have applicability outside workplace plan offerings.

As noted in the survey, the concept of an in-plan, retirement-income solution received mostly positive marks from focus group participants. When asked for some of the reasons behind these favorable marks, Varas said that Hearts & Wallets has been conducting qualitative concept tests of product-based methods of generating income for retirees for 10-plus years. Receptivity to “In-Plan Retirement Income Solution” has warmed, she added, compared to the 12-plus, most directly relevant concept tests explored by Hearts & Wallets in over a decade.

“We saw the positives in comments from many of the focus group participants,” Varas added. “Interestingly, group participants saw the concept as appropriate for 'less savvy' investors whose potential vulnerability to predatory financial institutions might be offset by employer vetting. The product was seen as better for younger, less disciplined investors rather than for themselves, said most group participants, who had a minimum of $500,000 in investable assets, skewing to $1 million to $3 million and over $3 million in investable assets.”

One positive was how group participants related the concept to the bygone era of pensions, Varas said “This nostalgia was positive,” she added. “Some participants noted a social safety net is “good for society,” with employer scrutiny being key. Positioning the in-plan income product as being vetted, approved and sponsored by employers may increase potential purchaser confidence. The positive comments from group participants outweighed neutral and negative comments.”

Implications for advisors

The test has several implications for financial advisors. According to Varas, advisors should:

• Seek to activate a nostalgic feeling of safety in pensions when marketing the in-plan retirement- income concept to prospective investors, or other forms of retirement income offerings.
• Explore benefits for more savvy investors to possibly broaden the target audience.
• Keep in mind that employer vetting is important to prospective in-plan participants.
• Offer education about annuity products to drive adoption of annuity products in retirement plans and outside of plan.

Caveats to be aware of

And for firms planning to offer an in-plan, retirement-income solution, Varas shared some caveats.

One barrier was the inclusion of target date retirement funds (TDRFs) for group participants who want more control over their investments than TDRFs offer, especially the fear of not being aggressive enough in their asset allocation as they age, Varas said.

There are regulations that prevent target date retirement funds in workplace plans currently; so. firms should work with regulators to help include this option for consumers who feel frustrated at being restricted in this area, she said. “One person in earlier Hearts & Wallets’ focus groups even spoke of having to lie about their age to use target date retirement funds to achieve their desired level of risk,” she added.

The report is part of the Explore 2024 series, Innovations in Investment Solutions & Customer Experience Models. The Explore 2024 nationwide focus groups were held in Dallas, San Francisco and New York in June. The groups included 70 participants ages 45 to 74, with sole or shared responsibility for investment decisions and a minimum of $500,000 in investable assets (excluding the primary residence), skewing $1 million to under $3 million and over $3 million, segmented on their self-reported highest advice categories into 3 broad segments – Uninitiated, Hybrid, or Fully Advised.

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Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].