Suddenly, the topic of retirement income is hotter than ever, but that may not be an entirely good thing for the life insurance industry.
These days, everybody seems to want a piece of the market helping retirees with their need for a dependable stream of income, and other related products. Life insurers may find the market getting uncomfortably crowded.
There are the giant fund managers: BlackRock Inc. is planning with Microsoft for a future in which annuities could come to more Americans’ 401(k)s, and State Street Global Advisors plans to launch its first 401(k) plan annuity feature next year.
Then there are the startups: Lifetime Income Technologies, for example, is built on the promise of a new “PersonalK” savings system for the many people who don’t have access to 401(k) plans because small employers don’t offer one, change jobs too frequently, or earn too little to put any money away.
“All of a sudden everybody woke up to how important this (retirement income) is,” said Jack Sharry, chief marketing officer of LifeYield, a company that helps financial advisors decide how to implement tax-efficient withdrawal strategies.
Even Vanguard’s announcement this month that it would stop selling variable annuities isn’t a rejection of the market.
The mutual fund giant decided to stick to managing the existing subaccounts for its individual Vanguard Variable Annuity and let Transamerica handle servicing and account administration.
Vanguard will still offer annuities for workplace defined contribution plans through its partnership with Hueler Investment Services. “I don’t think it was a sign it was failing, they just didn’t want to go deeper into the annuity world” as competition for annuities ramps up, said Dennis Gallant, a senior analyst with Aite Group’s wealth management practice.
Aite Group Senior Analyst Dennis Gallant.
On the legislative side, a coordinated lobbying effort from groups like the Alliance for Lifetime Income has retirement reform legislation close to being passed. Bills being considered by the U.S. House of Representatives and Senate both offer a major boost to annuities in retirement plans.
That is helping spark activity. A Pennsylvania broker, Dietrich, announced about two weeks ago it has created Annua, a division that helps retirement plan sponsors shop for annuities from insurers. Annua will work with insurers to offer income and deferred annuities to employers.
“The volume ‘s cranked up,” Gallant added. “You’re seeing discussions among firms that are not typical annuity providers.” Conversations about retirement income among wealth managers and advisors have come up more frequently over the past six months than they have in the past two years, Gallant also noted. A “tipping point” has been reached, Sharry said. He predicts many new annuity-related announcements will be forthcoming later this year. All the momentum will bring more competition to the annuity market but could benefit issuers too. They will still have a significant role in underwriting and supplying products. They have been busy innovating as well, offering more flexible annuities to help people to tap into benefits for a broader range of needs like critical illness or financial hardships. Annuities are more widely available as wealth management platforms now offer them to more distributor groups like registered investment advisors who prefer fee-based over commission-based models. A wave of digital sales technologies and other startups are focusing on worksite annuities that are transferable like other 401(k)s are, according to Aite Group analyst Samantha Chow. The bigger picture is that baby boomers, who are more often protected by private pensions, are moving deeper into retirement and the generations behind them are not nearly as well protected from the risks of living too long. Low bond yields have led many financial advisors to rethink bond ladders and the traditional stock and bond structures used to generate lifetime income, said David P. Lau, CEO of DPL Financial Partners.
David Lau, CEO, DPL Financial Partners
Whereas the discussion was once dominated by how best to build a retirement nest egg, the subject has shifted to how and when to draw down.
“Now the worry of retirement income is increasing,” Lau said.
Retirement planning has evolved as well to include a much broader set of parameters beyond the traditional asset allocation models between stocks and bonds, and the annual retirement portfolio withdrawal rates once considered safe.
Aite’s Gallant summed up the metaphorical shift: Annuities have traditionally been slapped onto a retirement portfolio as an afterthought, like icing on a cake.
But things have changed and the conversation has shifted into how to integrate annuities into the retirement portfolio as an original ingredient mixed into the cake before it’s baked.
“It does bode well for annuity carriers,” said Gallant, “It has not been easy for the annuity market the past few years.”
About Life Annuity Specialist
Life Annuity Specialist is focused on providing actionable business intelligence to executives at life insurance carriers and annuity providers. Life Annuity Specialist delivers thorough coverage of all firms that manufacture and sell variable, fixed and indexed annuities, term and permanent life insurance, as well as other insurance solutions of the life and health market.
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