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Survey: Product innovation surging across lifetime income market

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WASHINGTON, D.C. – The Insured Retirement Institute (IRI) today released a new report detailing how ongoing product innovation will help support continued demand for lifetime income in the years ahead.

In its annual State of the Insured Retirement Industry report, IRI notes that ongoing product development is creating a wide array of consumer choice regarding lifetime income products, allowing advisors to create retirement plans that better meet the needs of their clients. These product development efforts include new launches of Investment-Oriented Variable Annuities (IOVAs), new product designs of Fixed Indexed Annuities (FIAs), and the introduction of new Deferred Income Annuities (DIAs) that meet Qualifying Longevity Annuity Contract (QLAC) criteria.

“The demographic case for lifetime income has never been more pronounced,” IRI President and CEO Cathy Weatherford said.

“There’s a large cohort on the cusp of retirement. These Americans will live longer in retirement than any generation before, and will be more responsible for their financial security. This is a tremendous opportunity for the retirement income industry, and we are seeing market participants expand and fill out their product shelves to meet this growing need.”

The report also found that annuity providers are well-positioned headed into 2016, with strong liquidity and balance sheet fundamentals. In addition to healthy financials, the expectation that interest rates may soon begin to rise should ease macroeconomic headwinds bearing on the lifetime income market. IRI said if interest rates reach or exceed 3 percent, income-oriented annuity sales will likely increase significantly.

From a public policy perspective, IRI cautioned that the Department of Labor’s forthcoming final fiduciary rule is a wildcard that “all eyes across the industry will be watching,” as the final form of the rule will determine the level of disruption to the lifetime income industry and the consumers it serves.

Key findings from the report:

·         Demographics remain favorable, contributing to high demand for lifetime income products. According to U.S. Census data, there are more than 74 million Americans aged 55 and older.

·         Only 27 percent of Baby Boomers are confident their savings will last throughout retirement, creating a large pool of consumers who can benefit from lifetime income strategies.

·         Product development continues across the industry as annuity providers seek to diversify their offerings. These efforts serve two functions: to help manage risk and to better cater to the needs of today’s consumers.

·         Sales of IOVAs have increased 94 percent during the past five years and now make up 16 percent of total variable annuity sales.

·         FIAs are experiencing strong sales as a fixed income substitute and on the attractiveness of optional guaranteed lifetime income benefits. Sales of FIAs have increased 50 percent since 2011.

·         Sales of FIAs should continue to experience growth with the introduction of new products, including those that offer “uncapped” growth on the portion of the contract participating in the index.

·         The number of companies offering DIAs has doubled since 2012. As of mid-year 2015, sales of DIAs were tracking near 2014 sales of $2.6 billion. As recently as 2012, sales of DIAs were only $1 billion.

·         While only one QLAC product was available at this time in 2014, there are now 11 companies offering QLAC products that are available for use in either IRAs or workplace retirement plans.

·         Annuity providers continue to generally require the use of volatility managed funds in variable annuity products with guaranteed lifetime income benefits. Volatility managed funds now account for approximately $91.4 billion of variable annuity net assets, a 7.3 percent increase from $85.2 billion at the end of 2014.

·         The Department of Labor is expected to issue its final fiduciary rule in early 2016, while Congress considers legislative alternatives. The final form and substance of this rule will determine its impact on access to lifetime income in IRAs.

·         Legislative and regulatory efforts to promote retirement savings and increase access to lifetime income options continued in 2015. In the year ahead, IRI expects the Department of Labor to move forward with a proposal for lifetime income estimates on retirement plan statements and to revise the current annuity selection safe harbor. Meanwhile the Treasury Department is expected to finalize its pending partial annuitization proposal.


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