Annuity FYI Blog

Snoopy the beagle, MetLife’s corporate mascot, is famously appealing. But his appeal isn’t big enough to explain what happened in the second quarter of 2011, when investors put almost $7 billion worth of their retirement savings in MetLife’s variable annuities.

No, MetLife jumped ahead of Prudential as the top overall seller of variable annuities in the U.S. because its guaranteed minimum income benefit, or GMIB, seemed to be a better deal than Prudential’s guaranteed lifetime withdrawal benefit, or GLWB.

(The top selling annuity product is still Jackson National Life’s Perspective II contract, but we’ll save that topic for another post.)

Starting last May, MetLife began offering this proposition: Put your savings into certain funds in our tax-deferred variable annuity and, every year, until you reach age 91, your “benefit base” will increase (or “roll up”) by 6%. You can either withdraw that 6% (or any portion of it) or let the value of your investment grow.

(A GMIB benefit base, for those new to variable annuity riders, is the minimum amount that the investor can, if he or she wishes, convert to an irrevocable guaranteed stream of income payments for life. As long as the owner doesn’t withdraw too much in any year, the benefit base won’t be lower than original investment.)

For example, if you put $100,000 into a MetLife variable annuity with the new GMIB on a given day, during the next 365 days (and every contract year until age 91), you could let the benefit base rise to at least $106,000 or take a withdrawal of $6,000 and leave the benefit base unchanged. If you let the benefit rise every year for 10 years, the benefit base would be at least $179,000, which you could apply to the purchase of guaranteed income stream.

That proposition represented a 20% enhancement of MetLife’s existing GMIB rider (which the company still sells), which offered a 5% annual roll-up/5% annual withdrawal. More importantly, it was better than the deal offered by Prudential, which downgraded its Highest Daily GLWB last December. Instead of offering a 6% annual roll-up in its benefit base, Prudential began offering only 5%. In short order, MetLife leapfrogged Prudential in variable annuity sales.

There was a slight catch involved in MetLife’s new GMIB offer. To get the new 6% roll-up/withdrawal instead of the old 5% roll-up/withdrawal, investors in MetLife’s variable annuity had to agree to put all or most of their money into a group of funds whose managers use esoteric methods to smooth out the funds’ returns and prevent them from reaching extreme lows—or, possibly, extreme highs. But that catch apparently wasn’t significant enough to prevent investors from flocking to the new MetLife offering.

Written by Kerry Pechter

According to “Taking off the glitz,” Darla Mercado of Investment News says that variable annuities are losing some of the benefits that made them so popular in the first place.  Many living benefit features were added and made more attractive last year in order to draw investors into variable annuities.  But since low interest rates make it more expensive for insurance companies to offer benefits like lifetime withdrawal benefit guarantees, some of the top sellers of variable annuities are offering less to investors.

Prudential and MetLife are two of the largest variable annuity providers and two companies that are pulling back on their benefits.  While Prudential used to base lifetime income on 6% compounded growth, they have lowered that to 5%.  They have also increased the amount of time investors must defer their annuity from 10 years to 12 years in order to receive their promised protected value.  MetLife has decreased the income annuity associated with the guaranteed minimum income benefit because of low annuity rates.

Advisors are not happy that the benefits they have been pleased to offer investors are being reduced and are looking to new companies for different variable annuities.  Ohio National Financial Services Inc. introduced a new 8% simple interest growth lifetime withdrawal benefit, available on your entire original payment.  Thomas B. Hamlin of Somerset Wealth Strategies is pleased with the annual reset and 8% growth offered by Ohio National.  Transamerica Corp.’s Retirement Income Choice 1.2 rider and their withdrawal benefit are other good annuity choices right now.

The article lists other good benefit options from Protective Life Insurance Co. and Jackson National Life Insurance Co.  It is suggested that Jackson may move up to be the top seller of variable annuities now.  MetLife and Prudential still have a lot to offer in the variable annuity market as well, even with trimmed down benefits.  The moral is that variable annuities are not “one size fits all” and really must be customized to the individual investor and their needs.

In “Comparing & Contrasting Variable Annuity Riders,” Russell Bailyn of I Stock Anyalyst highlights the riders associated with current variable annuities being offered.  Some of the top companies offering variable annuities last year were MetLife, Prudential, and Jackson National so the author discusses some of their products as well.  Basically a variable annuity allows you to grow savings for the future while deferring taxes until you actually use the money.  The premium you have paid an insurance company is divided among different investments, so the value of your contract will fluctuate with those investments.  Once you withdraw the money, it is taxed as ordinary income.  Variable annuities are registered with the SEC because they are considered securities.

Variable annuities usually guarantee you a return of premium, so that while you could get (and hope to) more than you put in, you at least won’t receive less in the future.  Most variable annuities also offer death benefits, so that if you die before receiving your premium back the money will go to a beneficiary.  The guaranteed lifetime income riders guarantee a different amount based on the age that investors start receiving their payments.  The author points out that most companies and variable annuities offer about the same income amount based on the riders you choose and that their marketing efforts are what differentiates them.

Prudential offers the HD Lifetime 6 Plus, which takes 6% of the highest daily value of the variable annuity to guarantee income.  They offer a daily lock whereas some other companies offer monthly or quarterly locks in value.  The Guaranteed Minimum Income Benefit Plus from MetLife compounds 5% of the income base until you are 80.  It is different than some other variable annuities because there is a point where you have to annuitize and receive an income stream.  Jackson National offers the Perspective II giving 6% interest for 10 years in each year that you leave the money in your annuity.  They have a lot of other investment options that are less restrictive than some other insurance companies as well.  Those are just a few of the many variable annuities in the market to choose from.  While the basics of the product are fairly standard, the difference lies in what type of living benefit rider goes along with the variable annuity.

There are nine new investment products out there to help you both save for retirement and live in retirement and annuities appear more than once on this list.  Ernst & Young compiled the list they say offers you a bulletproof retirement, as written in “Tools to build a bulletproof retirement portfolio” by Robert Powell of MarketWatch.

There are four main products recommended to help you save for retirement.  While target-date funds have drawbacks for some, they can be useful in many circumstances.  Fixed annuities are less complicated than most other annuities and guarantee a minimum return.  Fixed indexed annuity products help conservative investors save for retirement through principal protection and returns based on a stock market index.  A variable annuity with a guarantee is another great way to save for retirement.  Choosing between the guaranteed minimum benefit riders may be difficult, but once you find the product for you it is worthwhile.

While living in your retirement, there are other investments to consider.  Payout funds are very liquid, but your net asset value will fluctuate.  Single premium income annuities are becoming more popular and user friendly for their guaranteed income payments over your lifetime.  Other products to consider include life insurance, long term care insurance, and other combinations.

According to Britain’s AnnuityRates.org, “Annuity rates (are) set to fall for 5 years, say IFA’s.”  The author states that 80% of the British advisers questioned believe that fixed annuity rates as well as other annuity rates will fall for five more years.  The study was performed by MGM Advantage at the recent Retirement Summit.  A quarter of the advisers think rates will fall by 7.5 to 10%, while a fifth of them think they’ll fall by more than 10%.

An interesting outcome from the interviews is that nearly all of the advisers questioned think that asset-backed, or indexed annuity products, will grow significantly over the next five years.  They think that people will be more open to taking bigger risks by investing in the markets in order to increase their annuity income.  With low interest rates, many investors are concerned that they will not be able to maintain their standard of living in retirement with conventional annuity products.

MGM Advantage says that rates in Britain continue to fall because of Solvency II and the increasing life expectancy of investors.  Their Flexible Income Annuity balances the need for a minimum level of income with both the risk of inflation and an option for increased growth.  It is a death benefit annuity with a minimum income guarantee rider.  Investors in Britain need to do the same thing as investors in America, shop around for the best fixed annuity rates and rates that will carry their savings through retirement.