What does 2013 hold for the retirement industry – besides the hope that something finally happens on still-unresolved fiscal cliff issue?
Taking a look at the year ahead, one prediction suggests that retirement-friendly deferred income annuities might become one of the biggest selling products – at least according to the Insured Retirement Institute.
The IRI's 2013 outlook, "The State of the Insured Retirement Industry," suggests that the products, which experienced their first year of significant sales in 2012, are poised to be the fastest growing product in the new year. Deferred income annuities offer a measure of "longevity insurance" as part of their design, allowing their owners to defer the start of the product's guaranteed income stream until a later date. Six companies currently offer a DIA or will be introducing one in the new year.
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The growth comes as the IRI notes the overall industry is, in 2012, in a stable and financially sound place, despite the long-term challenges of low interest rates. But with $16.1 trillion in total assets in qualified retirement plans in the United States, business continues to blossom for the industry.
And annuities as a broader product were finally put in the spotlight in 2012 as even government leaders began to talk about the need for solutions providing a lifetime stream of income, and the IRI suggests that the entire annuity field will see more innovation in the new year to reflect that increased focus.
The fact that consumers are also increasingly looking for safety and guarantees in their retirement investments will also continue to drive business, the organization notes.
"Baby boomers aren't getting any younger, health costs aren't shrinking and defined benefit plans aren't coming back any time soon," notes Cathy Weatherford, IRI president and CEO. "Market volatility and longevity risk will influence behavior. We are seeing this now as consumers are demanding guarantees and certainty."
In the variable annuity world, more companies are working on crafting products that don't necessarily include living benefits, as some retirement-directed investors are primarily interested in VAs for tax deferral or the ability to diversify into different asset classes – despite the fact that 90 percent of VA purchasers usually elect for living benefits.
Fixed-indexed and single premium annuities are also expected to see some changes, largely as companies strive to move the products through non-traditional sales distribution channels.
2012 saw impressive growth in the overall annuities industry, with almost 75 percent of financial professionals polled by the IRI reporting that their clients requested to purchase an annuity product during the course of the year – making annuities the most unsolicited product requested by potential consumers
In addition to product changes, the IRI continues to hope that these final weeks of 2012 product tangible work on solving the country's taxation issues before the "fiscal cliff" deadline, though concern remains that the reduction or elimination of the tax-deferred status of annuities and other retirement savings plans may still be on the table as a short-term solution on the part of some elected officials.
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