Administration March 29, 2007

Cerulli: Variable Annuities to Propel Annuities Sales

March 29, 2007 (PLANSPONSOR.com) - Driven by demographic trends and the development of products that address guaranteed income and principal protection, annuity assets are expected to swell nearly 40% to $2.6 trillion by 2011, according to predictions by Cerulli Associates.

Reported by

Adrien Martin

The research by Cerulli found that deferred variable annuities represent the largest portion of annuity sales, accounting for 68% of industry sales as of second quarter 2006, according to a press release . While variable annuities have shown rapid growth, fixed income annuity sales showed relatively little change, from 4% in 2001 to 11% in second quarter 2006.

The study showed that more than half of annuity assets (55%) and annuity sales (55%) are attributable to qualified arrangements as of second quarter 2006, the highest levels seen in more than 10 years. These qualified arrangements consist of individual retirement accounts (representing approximately 67% of total assets), 403(b) plans (25%) and small amounts in 401(k), Keogh, and deferred compensation plans.

Despite anticipated growth, Cerulli points out that one challenge to the growth of annuity sales is that less than one-quarter of both fixed and variable annuity sales come from money that is new to the industry.

The Cerulli report also found that:

Advisers place greater importance on principal protection than retirement income when choosing an annuity for their clients, as 79% and 70% selected these factors, respectively, in 2006.
Principal protection and retirement income were closer among fee-based advisers, at 70% and 66%, respectively, while commission-based advisers prefer systematic withdrawals to guaranteed withdrawals when recommending a decumulation option from a variable annuity.
Commission-based advisers were more likely (26%) to recommend variable annuities than fee-based advisers (9%).
Nearly half (48%) of fee-based advisers will not consider annuities for qualified rollovers versus 19% of commission-based advisers.
82% of advisers frequently or occasionally recommended in 2006 that variable annuity clients make systematic withdrawals to guarantee retirement income.