Variable annuities represent a major share of the retirement income market. But that position may be under threat by new, non-annuity retirement income products.
A majority of these companies believe the VA industry’s market share will decrease as these new products attract potential VA customers, according to a recent survey of 20 VA companies conducted by LIMRA International, Windsor, Conn. However, almost half expect that VA companies with guaranteed living benefits will retain their dominance in the retirement income marketplace.
With sales of VAs increasingly driven by the widespread availability of riders that guarantee income for life, the financial services industry has begun to expand structured retirement income solutions beyond deferred annuity products. Fidelity, Vanguard, and Charles Schwab are among firms that have introduced mutual funds designed to produce non-guaranteed regular income while still allowing access to any remaining account balance.
Other firms have tried other approaches using guarantees. Sometimes known as “synthetic annuities,” these products involve insurer-provided guarantees on non-insurance products or accounts:
o DWS Scudder, a Deutsche Bank company based in Kansas City, Mo., has designed its LifeCompass Income mutual funds to provide regular, fixed payouts over a 10-year period. A third-party financial warranty protects the distributions and at least a portion of principal.
o Allstate Financial, Northbrook, Ill., has rolled out 3 variable annuities that are intended to guarantee lifetime withdrawals from designated mutual funds, even if the account value drops to zero.
o Phoenix Life, Hartford, Conn. is offering Guaranteed Retirement Income Solutions, a product that “wraps” a lifetime income guarantee around an investor’s Lockwood Capital managed account assets. These assets must be invested in Lockwood’s specified asset allocation models.
o Genworth Financial, Richmond, Va., through its LifeHarbor group annuity, guarantees withdrawals from mutual funds or exchange-traded funds on AssetMark Investment Service’s managed account platform.
Even though many insurers remain committed to annuity product-based solutions to meet retirement income needs, these new income funds, accounts and products could cut into market share held by traditional VA products with guaranteed income or withdrawal benefits.