One of the biggest pieces of state regulation that I have fought against for the past decade is the 70/10 regulation. Known to the masses as the “10/10 Rule,” this anti-competitive rule limits surrender charges on fixed and indexed annuities to no more than a 10-year period, and often to less than a 10 percent surrender penalty. In fact, I’m often quoted as saying, “Bring on the 30-year surrender charge annuities!” After all, my money is qualified; I don’t want to be penalized for withdrawing money from my annuity prior to age 59-and-a-half. So, rather than doing 1035 exchange after 1035 exchange, I’d love to have the choice of a 30-year annuity. Sadly, thanks to regulation like 70/10, this annuity does not exist.
However, you won’t hear me asking for decades-long surrender charges today. In fact, you couldn’t coerce me into purchasing a seven-year surrender charge annuity today, much less any longer.
Why the change of heart?
It’s simple. Interest rates are at historical lows today. Fixed annuities are currently crediting an average 2.83 percent annual interest rate. (That’s lower than the minimum guaranteed rate on that annuity you sold in 1985.) Indexed annuity annual point-to-point caps today are averaging a whopping 3.15 percent. (Ditto.) At least we can look forward to a brighter future, right? After all, Ben Bernanke projects that rates will be better in oh, three to five years.
Did you catch that? Three to five years…so what are your annuity clients that bought 10-year surrender charge contracts going to be thinking right about that time? “Get me out of this stinking annuity with the 3.15 percent maximum credited interest! I want the annuity my bank is advertising with a guaranteed annual interest rate of 6 percent and a shorter surrender penalty!”