A registered index-linked annuity (RILA) is typically designed to help people accumulate money for retirement outside of a 401k plan, and despite some current regulatory barriers that restrict consumer access, the product is seeing significant growth.
The Secure Retirement Institute’s most recent U.S. Individual Annuity Sales Survey found RILA sales totaled $4.9 billion in the first quarter of 2020, up a noteworthy 38% from the prior year.
“Current market conditions favor RILA products more than fixed indexed annuities (FIA) as the increase in market volatility will help support crediting rates in RILAs,” Todd Giesing, senior annuity research director, SRI, said of the survey results. “As a result, SRI is forecasting RILA sales to increase more than 10% in 2020 while FIA sales are expected to fall about 20%.”
Giesing added that SRI is forecasting overall variable annuity sales to drop 10% in 2020.
RILAs figure to see an even higher growth trajectory if proposed federal legislation to lower barriers that restrict consumer access to them becomes law.
The measure, the Registration for Index Linked Annuities (RILA) Act, by Sen. Tina Smith (D-MN), Sen. Thom Tillis (R-NC), Rep. Dean Phillips (D-MN) and Rep. Steve Stivers (R-OH) directs the SEC to devise a new form for annuity issuers to use when filing registered index-linked annuities (RILAs). House and Senate versions of the legislation were introduced in May.
Four prominent annuity industry trade groups sent a letter of support June 8 to the sponsors of the legislation: the Insured Retirement Institute (IRI), the American Council of Life Insurers (ACLI), Committee of Annuity Insurers (CAI), and the National Association of Insurance and Financial Advisors (NAIFA).
“This legislation will serve consumers by reducing regulatory barriers, facilitate the offering of innovative annuity products such as registered index linked annuities, and ensure pertinent information is provided to consumers to make knowledgeable decisions about an annuity product they may choose to purchase,” said Wayne Chopus, IRI President and CEO.
A RILA can bring balance to an investor’s portfolio, the group says. From a risk standpoint, a RILA can be described as a cross between a fixed indexed annuity and a variable annuity. A RILA may be a good match for those who want to limit downside exposure, but are willing to accept some market risk in exchange for more growth potential, says Athene Annuity and Life Company, which launched its first RILA product in July 2019.
Athene says those searching for an option that provides lifetime income might find another annuity solution as a better fit, but a RILA may be appropriate for someone currently retired or planning to stop working in five to seven years. A RILA might be considered for those looking to supplement their retirement plan and interested in choosing from a variety of protection and growth options to create a strategy that aligns with their individual retirement needs.
Under current SEC rules, RILAs and other innovative new products must be registered using forms that are designed primarily for equity offerings and therefore require extensive information that is not relevant to prospective annuity purchasers, the annuity groups argue in support of the proposed bill. Those forms also require disclosure of financial information prepared in accordance with generally accepted accounting principles (“GAAP”), which many insurers are not otherwise required to produce.
The bill requires the U.S. Securities and Exchange Commission (SEC) to modernize and replace the current forms being used to file RILAs with a new registration form more closely tailored to this product. It would contain only the relevant information consumers need to make an informed choice about purchasing a RILA, eliminating extraneous information that currently makes the filing process more onerous and understanding the product more difficult.
The groups wrote, “We support this bill because it will lower a significant barrier that is preventing this innovative retirement income product from being used by more consumers who desire an annuity product providing some protection of their investment principal from market loss volatility, while also allowing participation in market growth.”
Advancing this legislation was one of the goals in IRI’s 2020 advocacy blueprint, released in late February.