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No Time Left For Lip Service

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The nation is now only two years away from the time when the oldest of the baby boomer generation hits age 62 and when some of them will be entering retirement.

Will the financial services industry be ready with products, programs, services and systems? Let’s call them PPSSs.

For the past few years, it’s been looking as if that wouldn’t happen. Many who watch the PPSS horizon have seen little evidence that the shakers and movers were shaking and moving in the boomer retirement direction.

There was lip service, of course, to the importance of addressing older boomer needs, their financial and longevity risks, and related matters. But only a few market leaders were also walking the walk.

What a difference 2005 has made. By year-end, buzz started circulating that income product sales were up (in particular, for immediate annuities and guaranteed withdrawal provisions in variable annuities). No one is talking double-digit increases, but they are talking rather respectable single-digit increases.

That buzz won’t be statistically verified until year-end results are in. But the scuttlebutt has it that companies and agencies that targeted the market produced more than blips.

Also during the year, a number of different wrinkles on income options started showing up in products.

Diversified Services Group Inc., Wayne, Pa., has reported that its 6th Annual Study of Retirement Income Products, Issues and Market Trends detected a “strong advance” in offerings of guaranteed living benefit options in VAs. That is telling, because these options are typically positioned for retirement income purposes. Significantly, nearly all executives interviewed by DSG said their GLB products had caused “dramatic increases” in their VA sales.

DSG doesn’t expect this trend will end any time soon, says James R. Sholder, DSG principal and leader of the study.

Why so? He cites “growing enthusiasm” for the products among executives interviewed for the study–and also a “robust pipeline” of such products now on the drawing boards at “numerous companies.”

As recently as a year ago, DSG was not seeing much developmental activity at all in the income product arena involving VAs. So, the above prediction represents a significant shift.

Not all companies are jumping on the income PPSS bandwagon, of course. But increasingly, when they do, the products include some innovative twists.

A recent example is the late fall debut by New York Life of a lifetime immediate annuity option (called “changing needs”) that lets people increase or reduce their payout amount, even though the payment stream has begun. That’s a lot different from the traditional immediate annuity structure, in which the payout is fixed at day one. It’s targeting those who want enough flexibility in their income stream to be able to respond to changing financial needs–very much a boomer issue, according to industry surveys.

Not incidentally, this feature is coming from a carrier that, in 2004, reported a 154% increase in lifetime income annuity sales. That reflects a recurrent pattern: The income innovations are coming from carriers that are going after income planning PPSSs.

The sense of readiness can be seen in Congress, too. For instance, talk there is moving to action on whether employers can allow investment advice at the workplace in relation to pension plans. Section 601 of H.R. 2830 would allow financial services companies that manage such plans to provide this advice–something currently not allowed under ERISA.

Should this provision stick in any enacted legislation, this could be a door opener not just to employees receiving investment advice on their retirement plan but perhaps also income-related investment advice as they approach retirement.

I sure hope so because such advice is sorely needed. NU has carried numerous surveys indicating that not only are workers uninformed about retirement savings and retirement income arrangements but also that employers are not providing much help in these areas (other than offering the plan itself). Absent federal legislation and guideposts in this area, it’s easy to see how the current state of affairs has arisen. Fortunately, and none too soon, efforts are in motion to turn this around.

All business people have a worst nightmare–some development that could derail their best-laid plans. Examples are recession, restrictive legislation or regulation, cataclysmic weather events, troubling public image, etc.

Even if the worst occurs, however, it won’t stop the fact that boomers are about to start retiring–and start needing income plans and assistance. Rain or shine, this will happen. Firms that have not yet put this on their radar screens had better get busy, now.