Due to the increased costs of hedging risk during a market downturn, Pacific Life has increased the fee of a popular annuity product. A new article from Janet Paskin of Smart Money says that the Foundations 10 variable annuity, which had guaranteed an annual return of 10% for 10 years, is increasing its fee to 1.35% from 0.85%. This fee is the percentage of the original purchase price that covers the guarantee.
Fortunately for current policyholders, the higher rate won’t affect them until their accounts “step-up” (when the purchase price is reset to reflect gains in the market) and recover from their losses. New policyholders will have to buy at the higher fee percentage, which further pushes up the cost of variable annuities. It’s a good idea to compare annuity rates, no matter what type of annuity you’re buying.