Providers Respond to Participants’ Call for Lifetime Income


Ongoing product innovation among insurance providers and asset managers is slowly improving choice for investors hoping to convert DC plan assets to guaranteed income streams.


The preponderance of new lifetime income products is very much a positive development given anticipated demand for lifetime income options in the years ahead, according to the Insured Retirement Institute (IRI), especially options hardwired directly into employer sponsored defined contribution (DC) plans. 

This has been a particular area of strong provider focus, IRI finds, but regulatory challenges remain and plan sponsors are still somewhat wary of the amount of fiduciary liability that might come along with in-plan lifetime income.

Heading into 2016, a vast majority of individuals investing in the DC system say they are open to the idea of in-plan lifetime income options, but only about one in five plan sponsors feel their company would be interested in offering these features. IRI notes that ongoing product development is creating “a wide array of consumer choice regarding lifetime income products, allowing advisers to create retirement plans that better meet the needs of their clients,” both participants and sponsors.

IRI finds product providers delivered a variety of new lifetime income approaches during 2015, with strongest development in the categories of investment-oriented variable annuities (IOVAs), fixed indexed annuities (FIAs), and deferred income annuities (DIAs) that meet qualifying longevity annuity contract (QLAC) criteria.

NEXT: The demographic trends are clear 

IRI President and CEO Cathy Weatherford says the demographic case for lifetime income, whether inside or outside the plan, “has never been more pronounced.” Put simply, there is a huge cohort of Americans who control substantial wealth who are all closing in on retirement and looking for ways to control their spending and insure against longevity risk.

“These Americans will live longer in retirement than any generation before, and will be more responsible for their financial security,” Weatherford says. “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.”

IRI says annuity providers are encouraged by the current market forces and most feel “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,” the report explains. If interest rates reach or exceed 3% by the end of 2016—which is admittedly on the higher end of economists’ current predictions—IRI says income-oriented annuity sales will likely increase significantly.

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

NEXT: Other key findings 

While lifetime income product providers are optimistic heading into 2016, the investors they hope to service are feeling anything but. A rather dismal 27% of Baby Boomers are confident their savings will last throughout retirement, for example. While this group represents “a large pool of consumers who can benefit from lifetime income strategies,” it’s less clear that they will have enough assets on average to shape a livable guaranteed retirement income plan.

Looking to particular product lines, IRI finds sales of investment-oriented variable annuities have increased 94% during the past five years, and they now make up 16% of total variable annuity sales. Fixed income annuities also 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% since 2011, IRI explains, further predicting 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.”

Additional findings show the number of companies offering deferred income annuities 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, IRI says.

Perhaps most impressive: “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 [individual retirement accounts] or workplace retirement plans.”

The full report is available for download here.