The rallying cry of the boomer generation continues to be “we want guarantees.” But is there something else in the air? For instance, are the growing concerns about the economy creating demand for more varied or targeted guarantees? And, what actions has the annuity industry taken?
A short history of products may provide some insights–or more questions.
Thus far, the insurance industry’s offerings with the greatest visibility are traditional VAs with optional features providing guaranteed withdrawal, accumulation and income benefits, shorthanded as guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits and guaranteed minimum income benefits.
These optional benefits tightly bundle investment and insurance and come in a variety of forms, explicitly addressing the quest for guarantees. The variations also implicitly and explicitly address differing subjects and durations for the guarantees: withdrawals, accumulation, specified periods, for life and dual lives.
The “for life” guarantees generally provide for benefit payments under 2 investment circumstances: when the VA owner is in the money and when the owner is out of the money. These may be said to be serving investors who have 2 active guarantee goals: a guarantee of near term payouts, and a guarantee of continuing payouts when the VA owner is out of the money for having lived too long.
The majority of the optional benefits now are designed to “hedge” those dual concerns. But are new design variations emerging?
In addition to offering traditional VAs, where guaranteed benefits are linked to assets held under the contract, there is an emerging development of what may be called “new age variable annuities.”
These new age products are technically fixed annuities; they are guaranteed payout contracts where the assets linked to and supporting the guarantees are not underlying funds. The guarantees are part of a package where the owners’ investments may measure the scope, size, duration and sustainability of the guarantees.
To date, 4 of these new age products–which have been assigned the questionable label of “synthetic annuities”–have been registered with the Securities and Exchange Commission. They are registered as fixed annuities that are securities. To date, the SEC has not declared them effective.