Annuity FYI Blog

According to The Street article “Putnam CEO Wants Annuity Oversight Agency” by Joe Mont, Putnam Investments’ CEO would like an agency similar to the FDIC in charge of lifetime income products like annuities.  Not only would he like the agency to oversee these investments, he would also like it to insure the products like the FDIC insures the money in banks.  CEO Robert Reynolds even named the fictitious agency the Lifetime Income Security Agency and he is calling on Congress to adopt his idea.  The agency would have the power to approve or deny all lifetime income products sold in the U.S.

It’s not that far-fetched of an idea, especially since the federal government, under President Obama’s lead, has been pushing Americans to secure their retirement with lifetime income products like the 401k annuity.  As we live longer, many retirees are facing three or more decades of retirement in which they need income to sustain their lifestyles.  He points out that overall sales of annuities have been relatively flat, partially because investors are wary to put so much money in one company whose guarantee lasts only as long as they are in business.  While choosing a top company takes a lot of that risk away, Reynolds argues that government insurance would help bring many more investors to the lifetime income of products like annuities.

Unfortunately some investors are turned off from these excellent investments because of stories they have heard about a few bad companies selling products that were too good to be true and not following through on their promises.  With a government agency overseeing those in the lifetime income business, only legitimate companies and good products would be approved.  This could greatly increase the consumer trust level for products like annuities, draw-down funds, and guaranteed pay-out plans.  Products like these, especially when they have death benefits, can carry Americans through a long lifetime without the worry of how they will pay their expenses in retirement.

As the heads of financial services companies press Congress for reforms dealing with retirement savings, they are making changes in their product offerings to account for new government support.  This information comes from Matt Ackermann’s article “Retirement-Product Moves Accompany Reform Drive” in Bond Buyer.  The changes they seek would ensure that consumers’ savings would last them throughout their retirement.  Robert L. Reynolds is the president and CEO of Putnam Investments.  He says that the goal of this reform could be met with more 401k annuities, or using some of one’s 401k savings to purchase an annuity with guaranteed lifetime income.  His goal is to help people better manage their retirement plans after they have been successful in saving over the years and growing their retirement plan.

Changes made over the past three years have already benefited consumers, most notably the Pension Protection Act of 2006 which required employers to offer enrollment in 401k plans to all employees.  Reynolds hopes that 2010 will be a year for retirement reform, especially for annuities.  “Annuities need to become more transparent, less complicated and less costly to become part of the long-term solution.”  With a little help from the government, and positive changes from financial companies, Reynolds believes that annuity assets will be $5.5 trillion in 2020, increasing from $1.7 trillion this year.  Whether consumers purchase fixed annuities or other annuity products, financial services companies assert that annuities and similar products are the best way to ensure consumers’ money lasts throughout retirement.

In Business Wire’s article “Putnam CEO Reynolds Calls for 2010 to Be the Year of Retirement Reform, with a ‘New Generation’ of Workplace Savings Plans,” Reynolds ideas for the future of retirement plans is highlighted.  Robert L. Reynolds is the President and CEO of Putnam Investments.  He hopes that following 2009′s year of healthcare reform, 2010 will be the year for retirement reform.  Annuities and other similar products that have lifetime guaranteed income should be incorporated into this “new generation” of retirement plans.

By 2020, Reynolds thinks that the market for annuities and other assured income products could reach $5.5 trillion.  The current estimate for variable and fixed annuity products by the Insured Retirement Institute is $1.7 trillion so this would be a significant increase over the next decade.  His proposed reforms call for insurance and mutual fund companies, sponsors of retirement plans, advisers, and the government to work together creating a new retirement marketplace.

In order to ensure that Reynolds’ idea of making assured income products like annuities a large part of retirement plans, he calls for some government reforms to help the process along.  A national insurance charter would consistently regulate all assured income products and a new regulatory agency tentatively named LISA (Lifetime Income Security Agency) would approve all assured income offerings.  A national insurance pool funded by the industry to secure annuity funds would be developed to mimic the FDIC bank protection.  Reynolds would also like it to be mandatory for workplace plans to offer annuities and other assured products and offer government tax incentives for plan participants to choose these offerings.  It’s a tall order, but could drastically change the face of retirement for the next generation.