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Study: Higher Fees, Less Flexibility in VAs' Living Benefit Riders

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The industry can expect higher fees and less flexibility in the guaranteed living benefit riders that come with variable annuities (VAs), according to the findings of a recent review of industry VAs conducted by Bellevue, Washington-based Symetra Life Insurance Co. The review, which included products from 10 of the largest VA providers, found widespread increases in the fees charged to customers, reductions in guarantees and benefits offered under many riders and, in several cases, elimination of an entire guaranteed living benefit offering.

“A couple years ago, we started to see the market change to a great degree, and some of what’s happening now may be a response to the current market situation,” says Colin Johnson, a Symetra spokesperson. “But there had been a proliferation of living benefit guarantees, and this had helped ramp up the VA market, so it is interesting to see a ratcheting down of flexibility and an increase in fees.”

Among other findings, the review showed that nine out of the top 10 VA providers raised fees on multiple living benefit riders within their VA product suite through 2008. In addition, eight of the 10 carriers have discontinued at least one guaranteed living benefit rider from their VA lineup, Symetra stated in a press release.

Even within existing VA contracts, Symetra’s review showed that VAs providers are offering less flexibility to their clients in terms of the investments they can make.

“A few companies are requiring customers to select fixed income products, which can restrict the upside growth potential when markets recover, so this makes a VA less of a variable product,” Johnson says.

Symetra has not reduced the guaranteed benefits available from its Symetra Focus Variable Annuity income rider since its inception, the company said in the release. Nor has Symetra made any changes to the way it charges fees on its Guaranteed Long Life Benefit rider, which is designed to help provide stable guaranteed lifetime income later in retirement, the company said.

“I think that people are looking for a dependable set of investment options in the current market, and as an industry, we’d like to see more consistency,” Johnson said. “This is what we strive for in our VA and other annuity offerings. Although VA sales have declined industry-wide, there will come a day when markets do return, and annuities will continue to play a role in individual retirement planning.”

Symetra conducted an internal review of VA prospectuses for its review.