Products May 2, 2023

LIMRA: Annuities Break Another Record in Q1, on Track for Record ’23

New PGIM research also signals a potentially larger market for the guaranteed income product.

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Retail annuities just keep selling amid rising interest rates, according to the latest update from industry association LIMRA on Tuesday.

After a record-breaking 2022, first-quarter sales of the insurance investment product were up 47% compared to last year at this time, hitting $93 billion, according to the Windsor, Connecticut-based association. That marks the highest quarterly sales of annuities since LIMRA began recording in 2008, and the group expects the surge to continue for another record-setting year in 2023, according to Todd Giesing, assistant vice president of LIMRA Annuity Research.

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“Market conditions continue to drive investor demand for annuities,” Geising said in a statement with the report. “Every major fixed annuity product line experienced at least double-digit, year-over-year growth. … Despite expectations that interest rates will level off, LIMRA is forecasting total annuity sales in 2023 to exceed $300 billion for the second consecutive year.”

A boost in interest rate levels not seen in more than a decade, combined with market volatility, has driven investors to annuities in the past year and a half. The need for insurance-backed income options also comes at a time when the Baby Boomer generation is either in or near retirement, pushing the country’s population of those 65 or older to almost double over a 42-year span, from 52 million in 2018 to an estimated 95 million in 2060—or from 16% of the population to 23%, according to the U.S. Census Bureau.

Slow Uptake in Retirement Plans

Despite the boom in retail annuities, the guaranteed income product has been slow to gain traction in defined contribution retirement plans. It hasn’t been for lack of industry attempts, withproduct innovation including offering annuities through managed accounts and making them default options within target-date funds. Momentum for use in plans may be building, though, as more plan sponsors are considering the option, according to research from investment manager PGIM Inc. published Monday.

The Newark, New Jersey-based firm reported that 34% of plan sponsors are considering offering in-plan annuities, and 5% already offer them. Meanwhile, 24% of plan sponsors are considering offering out-of-plan annuity options to participants, and 6% already offer the option. Even if plan sponsors are interested, however, participant communication will be key if uptake is going to increase, PGIM wrote.

“Despite plan sponsors indicating that annuities (in and out of plan) are the top areas of interest, only 14% agreed there is a significant amount of participant interest in adding in-plan annuities,” the researchers wrote. “This suggests that a critical step for every plan sponsor will be to gain a more holistic understanding of their participants’ retirement income needs as they chip away at the retirement income challenge.”

In a report in February, LIMRA published a prediction that the in-plan annuity market would grow “exponentially” in the next two years, particularly among larger plans. The association cited national retirement policy’s removal of barriers to in-plan annuity options as a boon to the products but noted that continued education for advisers, plan sponsors and employees will be necessary for success.

Moving the Finish Line

For now, annuities are doing well, historically, with limited retirement plan uptake. Fixed-rate deferred annuity sales in Q1 hit $41 billion, up 157% from Q1 2022, according to LIMRA’s Tuesday report. Fixed-indexed annuity sales also had a record-breaking quarter, up 42% to $23.1 billion, and the income annuity market hit its highest quarterly sales ever, topping $4.1 billion.

Single-premium immediate annuity sales were $3.3 billion in the first quarter, 120% higher than prior year, and deferred-income annuity sales jumped 125% year-over-year to $820 million, according to LIMRA.

“With investors looking to lock in favorable payout rates before they begin to fall, LIMRA expects the strong sales in the first half of the year to drive income annuity sales to grow at least 15% in 2023,” LIMRA wrote in the report, based on industry estimates representing about 83% of the total market.

PGIM’s separate research, which reported more broadly on retirement income thoughts by plan sponsors, noted that annuities are not the only answer to retirement income needs.

“Keep in mind that there are many solutions and tools outside of guaranteed income that plan sponsors should offer participants, including investment solutions that address the risks retirees face in retirement, comprehensive investment advice, and dynamic withdrawal guidance, to name a few,” the researchers wrote.

PGIM’s research included 155 plan sponsors surveyed from May 23 to August 26, 2022, with at least one 401(k) plan and at least $100 million in 401(k) assets.

Data & Research May 2, 2023

Do Small Business Owners Need Retirement Advisers Too?

Amassing sufficient retirement income and the impact of taxes on retirement savings are small business owners’ top concerns.

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Small business owners will likely be hearing a lot from retirement plan advisers about starting plans for their workers, thanks to incentives from the SECURE 2.0 Act of 2022, along with an increasing number of state mandates. But research from the Lincoln Financial Group, released to coincide with the U.S. Small Business Administration’s National Small Business Week, noted that small business owners also need to consider their own retirement plans.

Small business owners are facing significant financial stressors that include retirement planning. Among those surveyed in the recent study, 65% are concerned about having enough income in retirement, and 56% expressed concern about the impact of taxes on their retirement savings and investments. The answer, according to Lincoln’s experts, is to seek professional help.

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“Small business owners may also want to consider meeting with a financial professional to create a holistic financial plan, one that takes their goals into account and is designed to help them achieve positive outcomes,” said David Berkowitz, president of Lincoln Financial Network, in a statement.

Berkowitz suggested small business owners should look to protect themselves against unexpected risks by considering life insurance, which can help with succession plans and estate tax, and annuities, which offer a solution for retirement incomes that need to last for 30 years or more. They might also consider long-term care and disability insurance products that can mitigate risks such as critical illness, disability or premature death.

Principal reported that, despite the concerns, businesses both small and large do expect continued growth. Among all business owners, 76% anticipate their financials will improve within the next year, with 86% of large businesses and 69% of small businesses expressing optimism, according to the latest Principal Financial Well-Being Index.

Businesses of all sizes have taken action on reducing risk, according to the Principal report. Among respondents, 32% examined their current bank’s financial stability, 28% collected outstanding debt and 21% distributed account balances below the FDIC-insured amount.

According to the report, another top financial stressor for small business owners is inflation, with 68% of respondents expressing concern. Among other major concerns, 54% of small business owners had concerns about paying for long-term care services, and 53% worried about having enough money to cover large purchases or expenses, such as buying a car or having a wedding.

In general, small business owners experienced higher levels of stress compared to those who did not own a business. One in five business owners reported the severity of their stress as significant, while one in 10 non-business owner counterparts did so. When it comes to the largest source of stress, 22% of business owners identified theirs as finances, compared with 12% of non-business owners who said the same.

“Small business ownership comes with a great deal of responsibility—not only for the business and its employees, but also for the owner and their family,” Berkowitz said in the statement. “Our research shows that many people who own their own business may not be prepared with the right financial products and solutions to help them feel confident about their financial future.”

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