Where might annuity product designs be heading in the second half of 2015? Based on the August product launches, the focus is on retirement income — and retirement security. Attention to accumulation does show up, but that too is couched in terms of income. Following are a few examples of the different ways this is playing out.
A floor under potential index loss. Just this week, Allianz Life added a new index strategy to its Allianz Index Advantage Variable Annuity. The strategy zeroes in on a prevailing concern, which is “what happens if the index I choose experiences a large index loss, say 20 percent or so?”
Variable index annuity (VIA) buyers generally are willing to roll with small ups and downs in the indexes they select. But that doesn’t mean they don’t want protection against big index declines; after all, the VIA is a money pot for their future retirement income.
Allianz’s new “index guard” crediting strategy addresses that concern. At policy issue, Allianz says, it sets a floor on negative index performance that is of a “more severe” nature.
The minimum floor is -25 percent, but currently, it is -10 percent. If the annual index return is negative, the client receives “a negative performance credit,” which is never less than the floor. In the current environment, then, any negative index return is limited to no less than -10 percent, but negative index returns beyond that floor will not reduce the contract value, the company says.
On the other hand, when the annual index return is positive, the client receives an annual performance credit equal to that return, up to the policy cap.
The new strategy joins two others that were already in the product. One provides some protection from smaller index losses, and the other protects against any amount of index loss due to negative index performance.
All three are security-minded plays. The newest strategy is for people who want to accumulate assets but who have less tolerance for incurring a large loss, according to Robert DeChellis, president of Allianz Life Financial Services.
Growth without risk. Securian Financial Group has debuted a product that aims at retirement fund security too, but this is via a new guaranteed minimum accumulation benefit (GMAB) in certain variable annuities.
CalledSureTrack Plus 90, the GMAB guarantees that, on the benefit date, the contract value will equal the client’s total purchase payments or 90 percent of the highest anniversary contract value, whichever is greater (adjusted for withdrawals).
This rollout may surprise some, since not much is said about GMABs today. All eyes still seem to be on annuities sporting guaranteed minimum withdrawal benefits (GMWBs) and guaranteed minimum income benefits (GMIBs), especially for clients seeking guaranteed retirement income. So what gives?
Simply put, the new GMAB is designed “to help clients potentially grow their retirement assets without risking their initial investment,” the company said in a statement. This “may be a good fit for clients who are at least 10 years from retirement and looking for market participation with a base guarantee.”
“Clients are seeking guarantees,” summed up Linda Sonterre, director of individual annuity product development for Securian.
“Clients recognize that investing in the market can potentially help them grow their retirement assets faster, but they want guarantees protecting their investments when market performance slips.”
Stop and start income. Flexibility in annuity income is another theme that showed up in August. In this case, Jackson National rolled out its first lifetime income benefit rider for use in its the Jackson AscenderPlus Select Fixed Index Annuity, a single premium policy.
Called LifePay, the rider guarantees lifetime retirement income as do other withdrawal-based lifetime income products. However, the rider also lets the policyholder stop and start income payments.
The optional rider can be elected at policy issue or on any indexed option anniversary, including the end of the index option period. Owners can cancel it, too, at the end of the indexed option period (seven or 10 years), but they can’t re-elect it later on.
The annual charge is 0.50 percent for the single life option and 0.80 percent for the joint life option.
The start-and-stop feature may appeal to buyers who are uncertain about their future financial needs and so want to have a way to make changes.
The rider’s flexibility and cost structure will enable financial professionals to offer a product that generates a “dependable income stream their clients won’t outlive,” according to Marilynn Scherer, vice president of fixed and FIA product management for Jackson National Life Distributors.
Big boost for QLACs. Also in August, the Fidelity Insurance Network began offering three qualified longevity annuity contracts (QLACs) for sale inside of qualified retirement accounts.
QLACs are still pretty new. It was only a year ago when the federal government issued rules allowing the annuities to be purchased inside of defined contribution plans like 401(k)s and also in individual retirement accounts.
Nearly 10 carriers already offer at least one QLAC, but there has not been much buzz about sales yet. However, that could change. Fidelity’s sheer size, national reach and large volume of retirement plan business virtually ensures that QLACs will get some attention.
Under the government rules, consumers who buy a QLAC can then defer taking income from the QLAC policy until late in life (up to age 85), a time when additional funds may be needed.
In addition, QLAC owners can defer taking taxable required minimum distributions (RMDs) from their QLACs until whenever the annuity income starts. Since the RMD start date for other qualified assets is age 70.5, the RMD delay on QLAC money can be a valued tax feature.
Fidelity has made it clear that its new distribution arrangements with the three QLAC carriers will focus on the need for retirement income at the older ages. QLACs provide a way for people to create “guaranteed cash flow beginning later in life, while also potentially reducing their current taxes,” according to a statement by Cyrus Taraporevala, president of Fidelity Investments Life.
Today’s longer life spans mean that “many investors will need enough money to cover essential expenses through a retirement that may last 30 years or more,” he added.
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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