Fixed annuities are having a moment, and they can thank rising interest rates for it.
In a LinkedIn post today, Sheryl Moore, founder, creator and CEO of Wink, Inc., and Moore Market Intelligence, had a compelling chart culled from her WinkIntel’s AnnuitySpecs tool that offered a simple explanation. From her post:
Here’s why annuity sales are on the rise.
AVERAGE FIXED ANNUITY RATES
2011: 2.77%
2012: 1.98%
2013: 2.49%
2014: 2.71%
2015: 2.68%
2016: 2.01%
2017: 2.06%
2018: 2.95%
2019: 2.72%
2020: 1.81%
2021: 1.71%
Today: 4.25%
Amid this year’s stock market turmoil, consumers are turning to annuities as higher interest rates raise payouts for buyers.
“Fixed annuity sales are spiking because CD rates are still floating just above 1.00% and I have 5-year fixed annuities crediting 6.00%. Not to mention that the annuity provides tax deferral and a guaranteed lifetime income,” Moore said in an interview with 401(k) Specialist.
According to LIMRA’s recently released U.S. Individual Annuity Sales Survey, total fixed-rate deferred annuity sales were $29.8 billion in the third quarter, 159% higher than third quarter 2021 sales. The report states that this is the best sales quarter for fixed-rate deferred annuities ever recorded.
“Continued equity market declines and rising interest rates drove investors to continue seeking protection and purchase fixed-rate deferred and fixed indexed annuities at record levels in the third quarter”
LIMRA’s Todd Giesing
In the first nine months of 2022, fixed-rate deferred annuities totaled $74.4 billion, a 77% increase compared with the same period last year. LIMRA is projecting fixed-rate deferred annuity sales to near $100 billion by the end of 2022, which will exceed the previous annual high of $80.8 billion, set all the way back in 2002.
The LIMRA report found total annuity sales in the third quarter of 2022 hit $79.6 billion, a 27% jump from prior year results.
“Continued equity market declines and rising interest rates drove investors to continue seeking protection and purchase fixed-rate deferred and fixed indexed annuities at record levels in the third quarter,” said Todd Giesing, assistant vice president, LIMRA Annuity Research. “Our forecast suggests that protection products will continue to propel growth in the annuity market for the next several years.”
Third quarter fixed indexed annuity (FIA) sales were $21.4 billion, a 25% increase from prior year. This tops the previous quarterly sales record of $20 billion set in the second quarter 2019. Year-to-date (YTD), FIA sales were $57.4 billion, a 22% increase from last year.
“Rising interest rates will allow insurers to improve crediting rates while protecting the principal investment from equity market volatility, making these products more attractive to investors for the foreseeable future,” Giesing said. “As a result, LIMRA projects 2022 FIA sales to reach as high as $76 billion and increase each year through 2026.”
Registered index-linked annuity (RILA) sales improved 13% in the third quarter, to $10.5 billion. In the first nine months of 2022, RILA sales were $30.9 billion, 9% higher than prior year.
FIA growth has come at the expense of RILA product sales,” said Giesing. “After three years of more than 30% annual growth, LIMRA is projecting RILA sales to be flat or under 5% in 2022.
Annuities in 401ks
Recent research from Invesco has shown that almost 70% of employees are worried about running out of money in retirement, which explains why 80% of employees favorably viewed automatic enrollment into a retirement income solution.
In turn, more plan sponsors are showing interest in adding these benefits to their 401k plans. A 2022 Allianz Life study found that 60% respondents would consider adding an annuity to their employer-sponsored plan if it was available, and 80% said they would be interested in a product that would offer guaranteed income along with Social Security.
Early this month, Allianz Life made a new guaranteed income product available to its defined contribution (DC) plans. The Allianz Lifetime Income+ Annuity with the Lifetime Income Benefit will be accessible to DC plans nationwide and offer features including growth potential, protection from market loss, and guaranteed lifetime income. Allianz Life said the benefit will also have the potential to increase annually throughout a participant’s life, to cap for inflation effects.
“We designed this new guaranteed lifetime income product to work for real people and the reality of retirement today,” said Matt Gray, head of employer markets, Allianz Life. “The Allianz Lifetime Income+ Annuity marks a new way to design in-plan annuities with a flexible product design, streamlined connections with plan partners, and increasing income potential.”
The new product caught the eye of WINK’s Moore as well.
“Allianz just launched their in-plan annuity earlier this week. It is an indexed annuity with a guaranteed lifetime withdrawal benefit; very innovative compared to what I was anticipating,” Moore said.
The product is delivered through coordination among recordkeepers, enrollers, managed account providers, middleware providers and other DC plan partners.
SEE ALSO:
• Allianz Life Makes Latest Guaranteed Income Solution Available to DC Plans
• Employees Crave More Help to Create Lifetime Income Strategies
• How to Overcome the ‘A Word’ (Annuity) Adverse Reaction