U.S. Senator Elizabeth Warren recently questioned the ethics of annuity sales by sending letters to fifteen of the top annuity providers. Her concern lies with the incentives offered to insurance agents for selling annuity contracts. She is calling for a rule that ensures retirement advisors do not have a conflict-of-interest when selling annuities. Unfortunately, her public outcry shines light on the very small percent of unethical annuity sales practices. The majority of annuities are sold to people who greatly benefit from the product features and the majority of annuity owners are satisfied with their purchases. In response to Senator Warren’s industry questions, NAFA published a statement about annuities. The National Association for Fixed Annuities works hard to inform and educate the public about fixed annuity product benefits. In “NAFA responds to Sen. Warren, says annuities offer consumer protections,” Z Insurance posted the organization’s statement.
As consumers there is a great burden on us to plan for retirement and secure our financial future. Annuities have helped many people create income for a successful retirement plan. Even though most of us are aware that we need to save more and plan for retirement, only 45% of workers have saved more than $10,000 for retirement according to EBRI’s 2015 Retirement Confidence Survey. Sadly, only 22% of workers are currently confident that they will have enough money to live a comfortable retirement. Annuities help increase that confidence when purchased by individuals or couples. NAFA says that fixed annuities are the only products that let you accumulate retirement savings while keeping your savings protected and creating a guaranteed lifetime stream of income.
Even the chief actuary of the Social Security Administration praised annuities last year. He said that in order to create lifetime income during retirement that equals about 3/4 of your current income, you have to save more and purchase life annuity products. Soon after that, the Treasury Department issued their ruling making it easier to use Qualified Longevity Annuity Contracts (QLACs) as longevity insurance in 401k and IRA plans. Consumers can use these deferred income annuities to create income in later retirement years while minimizing the required minimum distributions they would have at age 70 1/2.
It’s pretty clear that annuities offer benefits in retirement that cannot be found elsewhere. But Senator Warren’s concern is that they are not sold to those who don’t need the benefits or are not sold with an unethical amount of fees attached. NAFA assures consumers that there is a large number of legislative and regulatory policies in place to make sure that consumers are well protected. The state and federal government both regulate life insurance companies through the processes of advertising and selling annuities. There are also suitability standards that agents have to follow and hefty product disclosure requirements. The NAIC Annuity Suitability Model and the Iowa Licensing Requirements and Permitted Activities Bulletin 11-4 create an even larger line of defense against unethical practices. NAFA is working with state insurance departments that haven’t already adopted these practices to ensure that they do in the near future.
The majority of annuities include a “free look” period, or a trial run where you can terminate the contract without penalty if you change your mind. The Insured Retirement Institute recently found that 9 out of 10 people who bought an annuity were happy with their purchase. The LIMRA Secure Retirement Institute also conducted research that shows annuity owners are much more confident in their retirement readiness than people who don’t have annuities. NAFA’s response to Senator Warren’s annuity concerns discussed the benefits of fixed annuity products as well as all of the regulations working to ensure that sales are ethical and consumers are well informed.