What does 2011 hold for the annuity market? The fixed annuity industry’s stunning victory over SEC Rule 151 this year has broad implications for next year.
Many Carriers and marketing organizations had been treading water unable to invest in the growth of their fixed annuity market while they waited for the final outcome of Rule 151A. Now that the regulatory uncertainty has been resolved with the repeal of the Rule, we expect that these organizations will greatly expand their sales, marketing, and product development efforts. This will be good for agents, consumers, and the industry as a whole.
At the same time, the debate over 151A has sharpened the resolve of all stakeholders – state insurance departments, carriers, marketing organizations, and agents – to continue their intense efforts for suitable annuity sales. Expect an even greater focus within the industry on suitability practices and compliance-related education, and expect more enforcement efforts from state insurance departments in their oversight of marketing, advertising, and sales of fixed annuities.
Hot regulatory issues will include the funding sources of the fixed annuity. We expect much debate, and NAFA is working with state regulators on ultimate clarification to help agents understand what constitutes insurance-only advice and what does not when moving money from variable annuities or other securities into fixed annuities.
NAFA also expects that annuity taxation may become a matter of more public debate. We believe that policymakers need to create additional tax incentives for retirement planning. The potential change in the balance of power in Washington may create opportunities for resurrecting two bills – The Retirement Security Needs Lifetime Pay Act (H.R. 2748) and the Lifetime Income Disclosure Act (S. 2832) – which encourage retirees to take lifetime income payments from annuities. On the other hand, the federal government undoubtedly is looking for additional sources of tax revenue. Thus, NAFA and the industry may need to step up efforts to defend the tax preferences that annuities currently enjoy.
Also, we will look for opportunities to repeal the provision in the Health Care Reform Reconciliation Bill that imposes a 3.8% Medicare contribution on income received from individual annuities, which will have the undesired effect of discouraging Americans from saving for retirement and guaranteeing a source of retirement income.
We expect that annuities with income riders will become even more popular as the Baby Boomers retire without company pensions and increasingly see the value of the guaranteed income benefits these annuities provide. Assuming the low interest rate environment continues and declared rate sales continue to struggle, we expect that broker-dealers will respond to consumer needs by increasing their sales of fixed indexed annuities. Also, we expect that carrier and marketing organizations will start to promote laddering and multi-step annuity strategies, particularly in those states that have imposed strict product design restrictions.
The National Association for Fixed Annuities will continue in its efforts to promote the awareness and understanding of all types of fixed annuities, educating regulators, legislators, consumers, members of the media, industry personnel, and distributors about fixed annuities. We are particularly excited about our producer education series and our partnership with SuccessCE to allow producers to comply with the education requirements of the NAIC Suitability in Annuity Transactions Model Regulation.