Displaying items by tag: annuities

According to a new report from LIMRA, the demand for annuities within employer-sponsored retirement plans will “grow exponentially” over the next two years. The insurance trade association noted in a press release that it anticipates “greater adoption of in-plan guarantees in late 2023 and 2024.” LIMRA noted that just 14% of defined-contribution plans currently offer annuities with income guarantees even though 70% of workers say they want some sort of guarantees that only annuities can offer in their retirement plans. The topic of annuities as an option in 401(k)s has been discussed for years. Supporters say that annuities offer benefits that workers want including guaranteed income. But detractors contend that annuities are too complicated for plan sponsors and employees to understand. In addition, if an annuity provider becomes bankrupt, employers could fear being liable under their fiduciary duty. So why does LIMRA anticipate the market exploding? Their press release mentions the SECURE Act 2.0, which President Biden signed into law at the end of last year as the reason. However, the first SECURE Act signed by President Trump in December 2019 may be the true driver of demand as it expanded safe harbor protections so that retirement plan sponsors could offer annuities without fear of being held legally responsible as part of their fiduciary obligations. It also allowed workers who change jobs to keep their annuity guarantees without incurring early surrender penalties.

Finsum:Insurance trade association LIMRA expects the demand for annuities in employer-sponsored retirement plans to grow exponentially due to the passage of the SECURE Act.

According to data from the insurance trade association Limra, annuity sales hit $310.6 billion in 2022, surpassing the prior annual record of $265 billion, set in 2008. That year the U.S. was in the midst of the Great Recession, while the S&P 500 index lost 57% from its peak. In 2022, the S&P 500 posted its largest loss since 2008, ending the year down 19.4%. Since annuities hedge risks such as market volatility, they became quite popular last year with investors. Annuities also benefited from the Fed raising interest rates, which created a better return on investment. Plus, U.S. bonds, which typically act as a safe haven for investors when stocks falter, suffered their worst year on record last year. This left very few options for savers looking for safety and a return. Investors were especially bullish on fixed-rate deferred annuities. Total sales of fixed-rate deferred annuities last year hit $112.1 billion, more than double the sales from 2021. They also broke the prior annual record from 2002, when investors bought $80.8 billion, according to Limra data. Indexed annuities also had a record year, with sales of $79.4 billion, an 8% increase on its 2019 record. However, variable annuities, which are generally tied to the stock market, saw annual sales of just $61.7 billion, the lowest since 1995.

Finsum: With a volatile stock market, rising interest rates, and the worst year on record for bonds, annuity sales had a record year, with fixed-rate deferred annuities and indexed annuities also posting annual sales records.

The SECURE 2.0 Act of 2022, which was passed in December 2022, is retirement reform legislation that aimed to increase retirement access and security for Americans. While the legislation’s focus was on defined contribution plans, it still had an impact on annuities. For instance, Section 201 of the SECURE 2.0 act removes availability barriers to some life annuities in tax-advantaged retirement accounts. Before the bill was passed, required minimum distribution tests limited the availability of some lifetime annuities which had large benefit increases from year to year. The passage of the bill now allows these annuities to increase at a constant percentage, no more than 5% per year. In addition, Section 202 seeks to make Qualified Longevity Annuity Contracts (QLAC) easier to invest in. The section raises the cap to $200,000 on how much money a participant can use from their retirement account to purchase a QLAC. Previously, it used to be either 25% of the account’s value or $125,000, whichever was greater. Plus, Section 204 allows a retiree with a partially annuitized plan to combine the payments from both the annuity and the plan to calculate their required minimum distribution, according to Elizabeth Dold, a tax attorney and executive committee member at the Groom Law Group. Before the bill, the two accounts had to be separated, each with its own RMD calculation, which could result in higher RMD payments than if they were counted together.

Finsum:While the SECURE 2.0 Act focused on DC plans, the legislation made changes to annuities such as removing availability barriers to some life annuities in tax-advantaged retirement accounts and making QLACs easier to invest in.

Based on the results of a recent Invesco retirement income study, 83% of people with defined contribution savings plans expect it to be their largest source of income during retirement. However, some data is showing retirement portfolios were down as much as 23% last year. When you add in inflation, which is making everyday costs expensive, investors may not be able to rely on their 401k for income this year. That’s why John Faustino, the head of Broadridge’s Fi360, is recommending advisors and their clients consider the use of annuities as guaranteed income solutions in DC plans through Broadridge’s retirement income consortium. The consortium includes leading annuity providers such as Allianz, Nationwide, and TIAA, as well as data and analytics firms that work with advisors, such as Fi360, Cannex, and Fiduciary Insights. In an interview with planadviser, Faustino noted that the consortium recently “published criteria for comparing retirement income solutions contained within what we call our prudent practices, which is a collection of legislation, regulation and case law.” He also mentioned that they’re launching a software tool based on this methodology later in the year. The criteria are “designed to help advisers document their reasoning for selecting a particular retirement income solution for a plan and to help them monitor their selections and the overall process.”

Finsum:Broadridge’s retirement income consortium, made up of annuity providers and data firms, published criteria for comparing retirement income solutions such as annuities.

Morningstar recently announced that it has launched an Annuity Intelligence Center for advisors to compare and manage annuities for their clients. Sales of annuities have been booming due to higher interest rates and increased demand for retirement income. The Annuity Intelligence Center aims to simplify annuity sales and management for advisors by offering a comparison tool, educational material, and product accessibility. The platform is a partnership between Morningstar and Luma Financial Technologies, an Ohio-based fintech company with a platform for broker-dealer firms to buy and sell annuities, long-term investment options issued by insurance companies, and alternative investments. The Annuity Intelligence Center is designed for retail annuity sales and management but does not include in-plan annuities for workplace-sponsored plans. While retail annuity sales have been flourishing, in-plan annuity sales have been lagging. Jeff Schwantz, global head of channel partnerships at Morningstar, said the following in a press release, “Assets in annuities are climbing, and while these vehicles are growing in popularity, the annuity marketplace remains opaque, and advisers serving investors have difficulty evaluating their options.”

Finsum:Morningstar is looking to take advantage of a booming retail annuity market with the launch of a platform for advisors to compare and manage annuities for their clients.