The variable annuity (VA) party has returned to the dance floor, where some companies step forward as others step back. Consumer latecomers to the party are looking these days for guaranteed lifetime income rather than investing for growth as their other sources of retirement income, such as 401(k)s, get sucked into the tough economy. In this area, some companies are offering riders that oblige, even as others find the cover charge too high in a low-return environment and turn away from the door.
But with sales of VAs almost back to 2007 levels (they hit $8.8 billion in Q3, a figure not reached since the third quarter of 2007, when sales reached $8.9 billion), according to the Insured Retirement Institute, buyers’ goal of finding funds they can count on for life is driving change at a substantial rate. Companies like Sun Life, John Hancock, Genworth and ING are taking steps to limit exposure or exit the VA market altogether or, in some cases, have already done so, while others are boosting options to woo boomers in search of security.
The Hartford became the latest of the latter in November by adding a have-your-cake-and-eat-it-too option with a pair of riders that jointly provide a guaranteed lifetime income and a guaranteed death benefit. While the company is not the first to do so, the market seems to have an appetite for it, along with guaranteed lifetime income benefits in general. The normally risk averse have become even more so during the economic crisis, with one big fear—running out of money in retirement—taking on epic proportions. An option that in essence offers them an opportunity to achieve two purposes at once is demonstrating strong popularity.
That popularity has not gone unnoticed. In an IRI report titled “Carriers Settle In: Variable Annuity Product Development Slows in Third Quarter,” Kevin Loffredi pointed out that Lincoln has two death benefit options as of Q3 2011 and Transamerica has three; Pacific Life also offers a death benefit option.
These options take their places alongside modifications to the income-for-life options that companies offer their clients. Minnesota Life and Monumental Life, in partnership with Vanguard, have new GMWBs; and Allianz has filed, but not yet activated, a lifetime GMWB. Activity on substantial modifications to VAs slowed in Q3 from Q2, when Loffredi said 162 material new filings were made. In Q3, he added in the report, the focus shifted to distribution from development, and only 40 material new filings were made. Those new filings, he said, concentrated largely on new share classes and the lifetime guaranteed minimum withdrawal benefit.
Into that breach has stepped The Hartford with its Future6 and Future6 DB riders on the Personal Retirement Manager VAs. We talked with Dave Lacusky, national sales manager at The Hartford, about how the riders work together.
The Future6, unveiled in June, is a guaranteed lifetime income rider that offers a 6% deferral bonus if withdrawals are delayed for 10 years. The new rider, unveiled in November 2011, is the Future6 DB, which offers the original investment or a stepped-up death benefit, depending on withdrawals and subject to restrictions. Used with the Future6, it will provide a death benefit that will not be reduced even if the income withdrawals are taken, as long as requirements are met.
With 2011 being the year that boomers start to turn 65, Lacusky points to AARP statistics showing that 7,000 of them hit that milestone every day. “Over 2.5 million will turn 65 this year, and over the next 10 years about 25 million people” altogether will have hit retirement age, he says.
In addition to the demographic shift, says Lacusky, “we’re seeing a greater desire for protection. People want income and capital preservation over maximizing returns.” He adds, “There are some things that need to be understood: There are withdrawal limits that can’t be exceeded that are preset in the contract.” If purchasers exceed the withdrawal limits governing either the lifetime income or the death benefit, reductions will be triggered accordingly.