Total U.S. annuity sales in 2021 were up a significant 16% from 2020 and reached their highest level in 14 years, according to just-released data from the Secure Retirement Institute.
Annuity sales totaled $254.8 billion in 2021, representing the highest annual annuity sales since 2008 and the third highest sales recorded in history, per preliminary results released Jan. 27 from the SRI’s U.S. Individual Annuity Sales Survey. Total annuity sales were $63.4 billion in the fourth quarter, 8% higher than fourth quarter 2020.
“Strong equity market growth in the fourth quarter and in 2021 propelled double-digit growth in both traditional variable annuity and registered index-linked annuity sales, resulting in strong year-over-year results,” said Todd Giesing, assistant vice president, SRI Annuity Research.
The banner year for annuity products got us wondering whether the 2019 SECURE Act’s opening the door to annuities being offered within 401k plans—a market the annuities industry has been keen to participate in for years—deserved any credit for last year’s increase.
The short answer? No. But of course there’s more to it than that.
“What we have been seeing in the individual annuity market when it comes to employer-plan annuity sales is slow growth in 2021,” SRI’s Giesing told 401k Specialist. He added that employer-plan sales were up 2% year-to-date through Q3, compared to the overall individual annuity market being up 19%. Giesing noted the employer plan data is only for individually owned annuities, and includes all employer plan types.
“We do expect the SECURE Act will bring more annuity product offerings to employer plans in the future, but we are expecting slow growth in this segment of the market, which is an improvement over the slow decline we have been experiencing,” Giesing added.
Annuity experts over at the Insured Retirement Institute told 401k Specialist essentially the same.
“You’re not really seeing that rise in sales influenced by the SECURE Act. It’s really on the individually sold products side,” said Frank O’Connor, IRI’s vice president for research and outreach. “I think you’re seeing the growth more a function of market conditions than anything else.”
Paul Richman, chief government and political affairs officer at IRI, reiterated that the overall 2021 annuity sales growth was indeed driven by individuals.
“I don’t think those sales numbers necessarily reflect what the SECURE Act provision did. They just started happening in 2021. Companies were delayed because of the pandemic and a lot of other things from implementing a lot of the provisions that were in SECURE,” Richman said.
SECURE Act impact emerging
Make no mistake, momentum for more guaranteed income solutions being added to 401k plans is definitely building, driven both by participant demand and carrier interest in the employer retirement plan market.
“As for the impact from SECURE, what we are seeing, given some of the developments and the reports that have come out about a number of retirement plan providers, insurance companies, asset management firms, that they’re looking now at beginning to offer the product that would allow for annuities in the 401k retirement savings type program,” Richman said.
With the biggest roadblock—the liability risk that existed under the ERISA annuity selection safe harbor for employers—now removed by the SECURE Act, Richman said many retirement plan providers and insurers are moving to offer protected lifetime income solutions in retirement plans. BlackRock, State Street, TIAA, J.P. Morgan, Nationwide and Allianz Life are just a handful of examples.
“They’ve either begun selling or announced plans to launch offerings that incorporate lifetime income solutions in the 401k market,” Richman said.
If a number of recent surveys are accurate, 401k plan sponsors and participants are eager to welcome the new offerings.
According to a fall 2021 Allianz Life survey, 87% of plan sponsors believe providing an option to get income that is guaranteed for life in a retirement plan will lead to greater satisfaction with the plan itself. Eighty-five percent of those sponsors that currently do not offer one said they are willing to consider adding an investment option with guaranteed lifetime income in the next two years, with 54% saying they are likely to do so.
As far as participants are concerned, the Allianz survey found:
- 73% of employer-sponsored participants would consider an option that offers guaranteed income for life in their plan if available.
- 64% of employer-sponsored plan participants stated that market volatility caused by COVID-19 has increased their interest in adding an option that offers lifetime income into their plan.
- 77% said providing an option for lifetime income within their plan would demonstrate their employer has a vested interest in their retirement readiness and wellbeing, and 65% said this option would increase their loyalty to their employer.
IRI’s own 2021 Retirement Readiness Among Older Workers research indicated similar participant interest.
“Our survey showed that 70% of workers age 40-45 said they are very or somewhat likely to allocate a portion of their plan to annuities,” Richman said. “Eighty-seven percent told us they believe it’s important that their income from their retirement savings is protected for life.”
Richman also shared some thoughts as to why participants appear to be so open to annuities within their 401k.
“What we’re seeing I think is that American workers are really still craving that steady retirement paycheck that they used to get from the old-fashioned pension plans but really aren’t available these days through defined contribution plans,” Richman said.
VAs, RILAs spur 2021 annuity growth
Getting back to SRI’s U.S. Individual Annuity Sales Survey, some categories stood out in contributing to the overall growth.
Total variable annuity sales were $32.3 billion in the fourth quarter, up 17% from prior year. In 2021, total VA sales were $125.6 billion, 27% higher than prior year.
Traditional VA sales were $21.7 billion in the fourth quarter, a 13% increase from fourth quarter 2020. For the year, traditional VA sales totaled $86.6 billion, up 16% from prior year. This ends nine years of declines for traditional VA sales.
“We have not seen traditional VA sales growth at this level in over a decade. Heightened concern about potential changes to the tax code drove growth in investment-focused, non-qualified product sales.”
Todd Giesing
“We have not seen traditional VA sales growth at this level in over a decade. Heightened concern about potential changes to the tax code drove growth in investment-focused, non-qualified product sales,” Giesing said. “In 2021, fee-based products experienced the largest gains as registered investment advisors and broker-dealers sought out tax-deferral solutions for their clients.”
Registered index-linked annuity (RILA) sales broke records in the fourth quarter and for the year. Fourth quarter RILA sales were $10.6 billion, 26% higher than prior year. In 2021, RILA sales were $39 billion, 62% higher than prior year.
“In 2021, RILA sales benefited from current economic conditions and expanded competition as new carriers enter the market,” noted Giesing. “SRI predicts investors will continue to seek solutions that offer a balance of protection and growth—which these products offer—in 2022, continuing RILA sales’ upward trajectory.”
Total fixed annuity sales were $31.1 billion, level with fourth quarter 2020 results. For the year, total fixed annuities increased 7% to $129.2 billion.
Fixed indexed annuity (FIA) sales were $16.6 billion, an 18% increase from fourth quarter 2020. FIA sales were $63.7 billion in 2021, up 15% from prior year. This marks the largest annual growth for FIA products in three years.
“Improved interest rates and product innovation around cap rates helped address the pricing challenges FIA carriers faced early in 2021, making the products more attractive to investors,” Giesing said. “In addition, we see growing interest in accumulation-focused FIA products, as investors seek principal protection with greater investment growth to offset rising inflation.”
Preliminary fourth quarter 2021 annuity industry estimates are based on monthly reporting, representing 85% of the total market. A summary of the results can be found in LIMRA’s Fact Tank.
The Secure Retirement Institute said its will release the 2021 top 20 rankings of total, variable and fixed annuity writers in March, following the last of the earnings calls for the participating carriers.
SEE ALSO:
• BlackRock Adds Annuity Product to Meet Participant Demand
• TIAA Launches Lifetime Income Product
• Nationwide, Capital Group, Annexus Team to Launch ‘Through’ TDF Income Product
• Allianz Life Annuity Added to Morningstar Retirement Manager