Annuity FYI Blog

The Insured Retirement Institute found that variable annuities are as popular as ever, reaching record levels of sales in the 3rd quarter of this year.  Net variable annuity sales of $8.8 billion had not been reached since the 3rd quarter of 2007 saw $8.9 billion in sales.  With this quarter’s $39 billion in total variable annuity sales, the industry is on track to reach $150 billion in annuity sales for the year.  This information comes from Advisor One’s Danielle Andrus, in her article “Variable Annuity Sales Highest Since Q3 2007.”  New investors are flocking to the guarantees and lifetime income of variable annuities and other annuity products.  Cathy Weatherford, President and CEO of the IRI, said that the industry has showed its strength and growth potential with the forecasted $150 billion in sales for 2011.

Quarter to quarter sales were down 4%, but annuity sales increased 6% from this quarter last year.  There were significantly fewer changes to benefit options in the 3rd quarter of this year, both compared with the 2nd quarter and compared with the 3rd quarter of last year.  The good thing for clients is that the benefits being changed are all very generous, as they have been in the last few years.  The biggest changes are with new share classes and GMWB riders that offer lifetime benefits.  Fixed annuity sales have been rather flat this year, at $58.3 billion to date.  Immediate annuity rates and many other factors go into the overall sales of annuity products, but the safety and guarantees of annuities are keeping them popular right now.

Written by Rachel Summit

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Four more states and the District of Columbia will ensure that consumers are getting the best annuities by the end of this summer, according to Linda Koco of Insurance News Net.  In “More Annuity Suitability Rules Going into Effect This Summer,” the Annuity News editor says that the newest states to adopt the NAIC’s rules will be Rhode Island, Oregon, Ohio, North Dakota and Washington D.C.  The NAIC’s Suitability of Annuity Transactions Model Regulation (NAIC 2010) has been a model for many states to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  All states must comply by June 16, 2013.  States must ensure that insurance companies are selling consumers the best annuities for their situation and require agents to take a four hour class about annuities and their impact on consumers and taxes.

There are 17 states and territories that already have laws mimicking NAIC 2010.  Six states have plans already in the works, and a total of 28 states are expected to have working plans this year.  The Insured Retirement Institute (IRI) and RegEd, a compliance and education firm, are working together to provide the annuity training to agents and state governments.  The Oregon Department of Consumer and Business Services found that most insurance companies and agents have been receptive to the new rules, as long as they are similar to the NAIC guidelines.  In 2005, the state issued guidelines deterring the sale of unsuitable annuity products and these new guidelines have built from that initial model.  Products like the 5 year fixed annuity and other annuities must be the best choice for the consumer in order to pass the standard ruling.  All of the NAIC regulations keep insurers and agents accountable for protecting consumers from products that they should not buy because they aren’t in their best interest.

The Insured Retirement Institute and other insurance agencies are working hard to make sure that the government doesn’t change the current annuity tax benefits.  Investment News’ Mark Schoeff wrote about the potential changes in “Deferral denial? Annuity tax alteration would wound middle class.”  As the federal government looks for ways to balance their budget and pay for recent spending, products with tax deferral benefits like annuities may just lose one of their top benefits.  The entire insurance industry is working to convince the government that cutting out the tax deferral for annuity products will really hurt the middle class.  The IRI reports that 80% of people investing in annuities make below $100,000 a year and 64% make below $75,000.  By cutting out the benefit that lets investors’ money grow tax-deferred until they start receiving payments, it will hurt their ability to save for retirement.

Even if investors lose the ability to grow their money tax-deferred, it may not result in a decrease of their final value.  However, they will have to use another source of income to pay for the taxes yearly if they have purchased a deferred rather than an immediate annuity.  The IRI’s president and CEO stresses the importance of annuities for Americans saving for retirement because they have lost many of the traditional pensions that guaranteed them retirement income in the past.  Tax-deferred annuities provide Americans with the guaranteed monthly lifetime income that they need throughout retirement.  Since there are skeptics basing their annuity information on the few bad apples in the industry, organizations like the IRI have to work extra hard to convince lawmakers and politicians how beneficial annuities are, especially to the middle class.

The Insured Retirement Institute notes that the number of Baby Boomers retiring is growing rapidly, but they need more information about annuities to feel confident in the products.  In “Annuities Education Still Lacking,” Bill Kenealy of Insurance Networking News discussed the results from the IRI’s study.  Close to 7,000 people are going to turn 65 every day this year, making the total number of Americans over 65 in 2012 greater than 41 million.  This is a huge opportunity for insurance companies to introduce annuity products to a generation ready to retire and move onto a new portion of their life.  The insurance industry is all ready to provide products for these Baby Boomers, but they need to make sure Americans are educated on their products.

This need for retirement income in America is reaching historic levels with all of these Baby Boomers approaching or already in retirement.  Annuity products bring peace of mind to investors because of their guaranteed lifetime income.  Whether they choose variable annuities that change with the market or fixed annuities that guarantee interest rates, annuities should be part of every balanced retirement portfolio.  Since 35% of those surveyed said they are not familiar with annuity products and 29% have no opinion on them, insurers need to get the word out and educate Americans on their retirement choices.  Insurers have to make sure that the value of annuities is clear to both investors and all advisors that can offer the products.

More investors are showing interest in annuity products, according to Insurance Networking News’ Bill Kenealy.  His article “Insurers Still Need To Convince Skeptical Retirees” summarizes survey results from the Insured Retirement Institute (IRI).  Life insurers still have to contend with an overall lack of trust for financial products and institutions in general after the past few years of market turmoil.  Even so, investors are not only interested in, but buying annuity products.  Pre-retirees and retirees who are looking to lower or eliminate the risk in their portfolios look to annuities to secure guaranteed income to cover basic living expenses.

Even though annuity rates are lower than the returns some other investments provide, the security of an annuity has drawn many investors in.  The IRI’s survey showed that more investors are looking into and meeting with financial advisors than in the past even though they don’t always trust the advice they are given.  It’s hard to find anyone right now who isn’t skeptical of financial advice or financial products, but doing your research is the best way to combat any fears of investing in the wrong product or losing your money.  Long-term and conservative investments like annuities are perfect for many investors right now.