Data & Research March 31, 2009

GLBs Dominate Variable Annuity Offerings

A survey by Milliman of leading U.S. variable annuity (VA) carriers revealed that about 96% of variable annuities offered include some form of a guaranteed living benefit (GLB).
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According to a press release of the results, sales of VAs that offered a GLB during calendar year 2004 averaged 87% of total VA sales, increasing to 95% in 2005 and 2006. Such benefits continued to be popular in 2007 and during the first half of 2008, with 96% of total VA sales offering a GLB.

The purchase of GLBs by policyholders also continued to increase, as during calendar years 2004 through 2007, the average election rate of GLBs was 52%, 62%, 63%, and 62%, respectively. During the first half of 2008, the comparable figure jumped up to 69%, according to the results.

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Various combinations of four types of GLBs are generally offered in the VA marketplace: guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits (GMWB), guaranteed lifetime withdrawal benefits (GLWB), and guaranteed minimum accumulation benefits (GMAB). Election rates reported by survey participants for GLWBs from 2004 through the first half of 2008 ranged from 61% to 93%, on average, of total sales of VAs that offered a GLWB.

The election rates of GMWBs reported by survey participants for the first half of 2008 averaged about 14%, down from 25% reported for calendar year 2004. An increasing percentage of total VA sales have been offering combination GMWB/GLWBs, but average election rates have declined from 58% in 2005 to 37% during the first six months of 2008.

GMIB election rates decreased, on average, from 49% in calendar year 2004 to 25% during the first six months of 2008. Average election rates of GMABs have decreased from 21% in 2004 to 10% during the first half of 2008.

The portion of total VA sales in which no GLB was elected dropped from 48% during 2004 to 37% to 38% during 2005 through 2007, and to 32% during the first six months of 2007.



Data & Research March 31, 2009

Young Adults Want More Financial Advice at Work

The youngest members of the workforce would like more education and guidance about finances at work, according to a survey by Charles Schwab
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Two-thirds of respondents (ages 23 to 28) said they would like to see their employer offer education and guidance about financial topics beyond those related to employee benefits, but only 25% of employers actually do so.

According to a Schwab press release, when it comes to financial education and guidance offered by employers, there is a sizeable gap between what younger workers want and what their employers actually offer. However, almost one in three younger workers (31%) said they are not very familiar or at all familiar with their employers’ offering of financial benefit plans.

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A study recently released by MetLife found that this gap exists across all age groups (see “Study Finds Employer-Worker Disconnect about Advice“).

Half of respondents to Charles Schwab’s survey said they want 401(k) or company-sponsored retirement plan guidance, but only 30% of employers offer it. However, of those individuals who have access to an employer-sponsored retirement plan, 87% say it is an important benefit, but 35% are not contributing to it. Of those who do contribute, more than one-third (35%) are not confident in their ability to make suitable investment choices.

Other fiscal fitness help younger employees want, according to the press release, include:

  • debt management education (30% of employees want it; 8% of employers offer it);
  • advice about investing outside a 401(k) or other workplace retirement plan (30% of employees want it; 7% of employers offer it);
  • budgeting advice (26% of employees want it; 10% of employers offer it);
  • guidance about purchasing a home (22% of employees want it; 5% of employers offer it);
  • counsel about saving for a child’s education (19% employees want it; 4% of employers offer it).

Almost two-thirds of young adults (64%) ranked financial fitness as more important than physical fitness; however, fewer than one in five (18%) consider their own financial physique to be “toned and fit.” More than three in four young adults describe their financial health as either “a little flabby” (55%) or “seriously out of shape” (27%).

Fiscally Prepared

The Schwab survey found 26% of survey respondents said they were most surprised to learn how much money it takes to live independently as they “began to live life on their own.” Only about half (51%) are financially independent from their parents. More than a quarter (26%) still live with their parents, and of those, 28% are unemployed while another 26% made the choice to live with their parents in order to save money.

The majority (56%) of young adults surveyed attribute their knowledge of money management basics to their parents, with 43% continuing to turn to their parents for ongoing financial advice.

Many in this age group admit they do not feel adequately prepared to make good financial choices when it comes to using debt wisely (28%), saving for the future (40%) or investing their money (43%). When asked which aspects of personal finance they wish they had learned more about before entering the workforce, living within a budget (45%), and the importance of saving (42%) were the top responses, Schwab said.

On average, those surveyed carry more than $14,000 in debt (excluding home mortgages). Of those who use credit cards, only one-third (33%) pay off their entire balance every month, while the other two-thirds make payments less reliably. Nearly 10% said they make payments only when they can.

More than one-third of young adults surveyed (36%) said that the single most important action the Obama Administration could take to improve financial literacy in the United States would be to create incentives (or provide additional funding) for states that mandate personal finance in the standard high school curriculum. Another 36% believe the Administration should create economic incentives encouraging employers to provide holistic financial education for their employees, and fund a public awareness campaign for financial literacy to encourage parents to do a better job of teaching their kids money basics.

The 2009 Young Adults & Money survey was conducted by Lieberman Research Worldwide on behalf of Charles Schwab in January. The online survey polled 1,252 young adults.

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