Industry estimates show that only about 1% of annuities enter the payout phase. The question is, why? asked William Borden Ayers at a conference here.
A principal of The Diversified Services Group Inc., a Wayne, Pa., research firm, Ayers was among several speakers who probed stress points insurers and annuity marketers are facing in the retirement income market.
The speakers were addressing the first retirement income conference to be offered by the National Association for Variable Annuities, Reston, Va.
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Market positioning is occurring and the opportunity is here, said Ayers, alluding to aging baby boomers, prolonged longevity, and other retirement-related trends. Yet, annuitization rates are low, he said, and many insurers continue to focus on the accumulation phase of life, not the income or distribution phase.
In research his firm recently conducted on immediate variable annuities, consumers had many reasons for not annuitizing. For instance, “they didnt understand annuity payouts,” Ayers said, “and they had no explicit plan for spending and managing their retirement income.”
Furthermore, “they said they are concerned about losing control of their assets. And they lack focus about what their responsibility is for income management and what the financial impact of longevity will be in their lives.”
As for the producers surveyed, Ayers said some displayed a “negative bias” about annuitization, feeling its “a bad deal for the client” or that industry positioning on it is confusing. Others fear they may lose clients after annuitization; compare it to systematic withdrawal plans; or want to know more about the related tax issues.
Finally, Ayers said, the survey showed that a number of financial services industry executives are themselves hesitant to move forward on income products.
For some, he said, “being first to market here is not a priority.” Others lack a firm commitment (resources, strategy, buy-in, etc.) to developing income products, while still others are adhering to “old thinking” on product development initiatives.
In short, annuitization is not part of the institutional equation for many companies, Ayers said. The result? “Limited sales emphasis and marketing support.”