At the end of 2013, we touched upon some of the things that we expect to happen with annuities this year. But Life Health Pro’s Maria Wood goes into much more detail in the article, “Annuities: 5 things to expect in 2014.” As an expert in the annuity industry, Maria Wood has a lot of insight into the current issues. She discusses the five issues regarding annuities that will likely be at the top of people’s minds in 2014.
Fixed indexed annuities had a great run in 2013. Sales skyrocketed and these products saw increases only previously seen by variable annuities. Overall, variable annuity sales were flat, but fixed indexed annuity benefits made them popular with risk-averse retirees. We’re not yet sure what will happen with fixed indexed annuity sales this year, but be certain that many people are watching. Increasing interest rates and a stock market in recovery might take some of the appeal off of fixed indexed annuities. This is if the economy continues on the same path. The benefits of these annuities remain the same, so I think they are likely to continue selling well into 2014.
Insurance companies took a hit with their variable annuity living benefit riders after the stock market decline in 2008-2009. Last year, many of these companies made big changes to their variable annuities to make up for these losses. Some stopped selling variable annuities at all, while others offered customers a buyback of their living benefit riders. Some companies raised the fees and others scaled back on the features they were offering. But one of the new trends in the variable annuity business is to offer variable annuities without living benefit riders. Both Jackson National and Jefferson National, two big providers of variable annuities, started marketing these no-living-benefit variable annuities as great tax-deferral investments. For those seeking tax deferral as one of their main goals, these products are meeting a big need and will probably increase in popularity. More companies are likely to follow suit offering the products as well.
A lot of private equity firms got into the fixed annuity business last year by purchasing the likes of Sun Life and Aviva. Regulators have made stricter standards for these firms because no one is really certain what they plan to do with this fixed annuity business. One company has already taken Fidelity & Guaranty’s annuity business public, so other firms might do the same with their fixed annuity purchases. There will be a lot of things to watch out for this year, including whether private equity firms continue buying fixed annuity business or move on to something else.
Glenn Neasham was convicted in 2011 of inappropriately selling an annuity product to an elderly woman with dementia. The case was then overturned, but that decision was questioned by the Attorney General. Certainly, Mr. Neasham long awaits a decision in his annuity fraud case, but it affects the entire industry as well. The way that annuities are sold to senior citizens has entirely changed since this lawsuit years ago. This is probably for the best because advisors are more conscious about annuity suitability. Hopefully 2014 will bring some resolve to the Neasham case for multiple reasons.
The final item to watch for this year is the interest rates. We keep saying that interest rates cannot go any lower, but that isn’t necessarily true. The annuity industry and the the entire financial community will watch with bated breath to see where interest rates go in 2014. This will be big news all year because it can make or break investments and consumers’ retirements.
Written by Rachel Summit