One of the challenges for annuity sales today is what Cerulli Associates calls the “blurring of lines” between guaranteed minimum withdrawal benefit features and annuitization options.
Many variable annuities now offer both features, and some fixed indexed annuities now do so as well, and the features are looking more and more alike.
In particular, “we are starting to see some similarity between the newest GMWB features and annuitization,” says Lisa Plotnick, associate director at Boston-based Cerulli, which recently released a new report on annuity trends.
For example, she says, newer GMWBs increasingly offer “a lifetime withdrawal benefit–a stream of money you know that you can’t outlive,” as is the case with lifetime annuitization options.
In addition, some of the newer GMWBs offer “spousal benefits, which is something we see with annuitization all the time.”
And, many GMWBs now have a waiting period, of say 5 or 10 years, she says. The consumer can still get money out earlier, but the person “will get an additional benefit–a stepped-up or enhanced value–by prolonging the period before taking money out,” Plotnick says. The waiting period means the annuity can do its accumulation before paying out benefits, she continues. It’s similar to a deferred annuity that can be annuitized later.
Another blurring has occurred in benefit computation. One-third of lifetime GMWBs now base their benefit percentage on the person’s age, notes Plotnik. “It’s age-rated, just as in the annuitization tables.”
Advisors will need to become comfortable with and informed about what is actually offered in annuities with GMWBs, she says. “The products differ,” she explains, “and they can have can have many moving parts, plus tax implications.”
The new report, Cerulli Quantitative Update: Insurance 2007, targets several other annuity challenges, too.
It predicts that annuity assets will reach $2.6 trillion by 2011, up 39% from the current level. But the ratio of net sales relative to gross sales is low, it says.
In fact, less than 25% of fixed annuity and variable annuity sales are derived from money that is new to the industry, the report says, calling this a “troublesome trend.”