There is some $9.5 trillion sitting either in IRAs, defined contribution plans or non-qualified mutual funds that may soon be looking for an investment option that provides a lifetime of guaranteed income. And annuity insurers are well-positioned to capture that burgeoning market, says a new report by Conning Research & Consulting, “The Big Payout: Growing Individual Retirement Income Opportunities.”
Breaking down the numbers further, Conning estimates that individual and group annuities accounted for 46 percent of all defined contribution (DC) plan assets as of the end of 2011. A nice percentage, but Conning says there is even more in play. It calculates there was another $7.3 trillion parked in IRAs and DC plans not invested in annuities, with an additional $2.2 trillion held in non-qualified mutual funds that were earmarked as retirement income.
What does that mean for annuity insurers? It underscores an enormous opportunity to move those dollars into their products, Scott Hawkins, (below right) vice president of insurance research and consulting for Conning in Hartford, Conn.
As he sees it, annuity insurers have two chances to bite into that marketplace. The first is when people turn 65 and look to liquidate a portion of their accumulated funds to support their retirement. As the Conning reports points out, 2.7 million baby boomers reached age 65 in 2011.
There are the retirees who turn 70-and-a-half and must start taking required minimum distributions from their DC plans or IRAs. Last year, 2 million members of the so-called Silent Generation turned 71.
“Not only are insurers responding by marketing to this emerging group of retirees, but they are actively enhancing their existing products lines,” Hawkins says. “They are developing rollover variable annuities that are aimed to capture that IRA rollover market.”
More than just devising new products, annuity insurers have a distinct advantage over mutual funds in their quest to grab a higher share of the retirement income market. “Only insurers can guarantee you get a steady income that you cannot outlive,” Hawkins says.
Annuity insurers do face some headwinds in netting more of those assets, though. Perhaps the most daunting is convincing a skeptical public that annuities are, in fact, a good financial product. Many consumers think that once they invest their hard-earned dollars in an annuity, they give up control over their funds.
However, annuity providers have addressed those concerns by inserting liquidity features into their products so that if a policyholder has an emergency, he or she can take a larger withdrawal, Hawkins notes.