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.

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.