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The IRI Predicts An Increase for Annuity Sales in 2014

We’re all making predictions for the new year.  It might be how long our resolutions will last or where the interest rates will go.  I have found a number of predictions about annuities, including an article in Life Health Pro summarizing the Insured Retirement Institute’s (IRI) 2014 forecast.  Maria Wood tells us what the IRI expects to see happen in the annuity industry this year in “Annuities: 4 predictions for 2014.”

First of all, the IRI expects an increase in annuity sales.  2013 was a good year for annuity sales after four years that were not great.  Fixed annuity sales saw the most growth, while variable annuity sales were relatively flat.  Although annuity sales are still lower than they were before the financial turmoil of 2008, they are climbing back up faster than many people expected.  Interest rates and the performance of equity markets impact the level of annuity sales, so we don’t yet know how those will pan out this year.  But we do know that Americans have a strong interest in guaranteed income, we are living longer, and many more Baby Boomers will retire this year.  Those three things are very likely to positively impact annuity sales in 2014.

Deferred income annuities have skyrocketed in popularity over the past few years.  The IRI expects sales of these annuities to hit $2 billion this year, after sales climbed to $1 billion in 2012.  Twice as many companies are selling deferred income annuities because of their increasing popularity.  People purchase the annuity and then start receiving guaranteed income 5 to 15 years in the future, on average.  The NAIC put out a new Guide for Deferred Annuities after the increase in sales of this type of annuity.  In addition to DIA’s remaining popular, the IRI predicts that variable annuities without living benefits, equity indexed variable annuities, and variable annuities with immediate living benefits will also increase in sales and innovation this year.

There will be a lot of regulation in 2014 regarding annuity products.  It is likely that the Department of Labor will re-propose the revised fiduciary rule in August.  There are two proposed laws right now that would create a national retirement act.  The Department of Labor is still working on their lifetime income illustration proposal and annuity provider safe harbor.  Proposals regarding partial annuitization and longevity annuities are being finalized by the Department of the Treasury.  Many people are closely monitoring the NAIC’s focus on contingent deferred annuities and possible changes to the tax-deferred status of some retirement products.

If interest rates continue increasing, the IRI says that this will be good for the annuity industry.  Variable annuity sellers who took big hits in the past few years will be able to better hedge and meet their reserve requirements.  Sales of variable annuities will be likely to increase.  Increasing interest rates helped consumers receive higher payouts from their immediate and deferred income annuities.  There were also consumer benefits for fixed indexed annuities and fixed deferred annuities.  While interest rates are still historically low, a steady increase will be good for the demand of products that guarantee lifetime income.

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