The Message At NAVA: Get Ready For Income Planning

By

Washington

Variable annuity insurers should focus on promoting the VAs ability to “provide lifetime income or avoidance of lump sum poverty,” said Jane Mancini, the new chair of the National Association for Variable Annuities at the groups annual meeting here.

The industry should not be ashamed of selling VAs, said Mancini, a consultant and VA expert, because the product offers consumers protections against both mortality and market risks.

By contrast, she said, in the last three years, systematic withdrawal (commonly used to remove money from mutual funds on a regular basis) has turned out to be “like dollar cost averaging in reverseconsumers bought high and sold low.”

The industry needs to concentrate on educating consumers about the benefits of the annuitys lifetime payout features, she stressed. It also needs to spur consumers to support the proposed Lifetime Annuity Payout legislation that would give capital gains tax treatment to the annuitys inside buildup, when the consumer opts for lifetime payout.

NAVA already is moving this way, she noted, and has joined a new Annuity Coalition that is supporting legislation encouraging annuitization. It will, said Mancini, “incent investors to elect the lifetime annuity payout and receive a retirement income stream they cannot outlive.”

The lifetime payout issue “is not about insurance companies or producers,” said Mark Mackey, president and CEO of NAVA, during his opening remarks. “This is a major public policy problem.”

Many Americans no longer have defined benefit pension plans, he pointed out. As a result of this and any other financial trends, “many Americans stand a real chance of outliving their assets.”

NAVA is partnering with InFRE, Lubbock, Texas, to develop a training course for advisors in income planning, Mackey pointed out. InFRE is a nonprofit foundation that provides retirement education programs for professionals.

NAVA is doing this because it believes “people should seek professional advice when planning for retirement,” said Mackey. “It is not a job for financial novices.”

Another recent NAVA initiativea report on breakeven holding periods of VAs in comparison to mutual funds postshows “annuities are still attractive for long-term savers, especially when electing annuitization,” added Mackey. (Prepared by Price Coopers Waterhouse, the report was commissioned by NAVA and distributed at the annual meeting).

Jon Boscia, Lincoln Financial Group chairman and CEO, said a key retirement problem is that the definition of retirement is changing. Boomers are living longer than previous generations, they are healthier and they are eating better, he noted. Many will live 20 to 30 years after retirement, but they have a lot of self-reliance and dont want to depend on their children.

Meanwhile, the traditional components of retirement incomeSocial Security, company pension plans and personal savingsare weakening in various ways.

The industrys focus on asset allocation has helped many boomers accumulate funds for retirement, Boscia allowed, but as they enter retirement, they will need to focus more on asset protection, longevity management and wealth transfer.

Where income distribution is concerned, boomers will need income plans plus flexibility, he stressed.

The variable annuity industry should play a key role in meeting this need, he indicated, because it has the franchise to offer mortality and morbidity protection. The industry also has the technical expertise, and the ability to offer solutions that coordinate annuities, life insurance, money management and financial planning seamlessly.

But in this new retirement income model, boomers will need education and training, he cautioned. In fact, he predicted, “the boomers, especially the affluent boomers, will demand it.”

As it is now, Boscia said, the way consumers understand income products is that their money goes into a black hole–the insurance company–and they never see it again. Then they get a certificate telling them the insurer will pay them their money over a period of time.

Its no wonder 98% of the people who have annuities dont annuitize them, he quipped, in response to a questioner who had asked for his views about what needs to happen to income annuity products to make them more suitable to retirement planning scenarios.

But people need to be able “to see and influence their money when it is in an annuity,” he said, and therefore, annuity products need to be flexible and offer liquidity. This will enable people to get to their money if they want to use it in event of a second marriage or to buy a second home or maybe to start a new business.

“Right now, the current generation of products doesnt meet baby boomers needs.”

The remarks came at the end of a wide-ranging speech Boscia gave on what he termed “the golden age of insurance.”

He predicted that the time has never been better to be in the retirement and insurance businesses. The coming of the boomers, he explained, will change the insurance business forever. The change is what will make it the golden age of insurance, he said.

“But are you ready for it?” he challenged the audience.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.