Annuities’ Appeal Accelerating

The climate is warming. No, not that one—the climate for annuities. Interest in them among retirement investors is rising, according to recent reports. 

This actually is not a new trend, says LIMRA. They report that interest in annuities stood at 33% of those whom they surveyed in 2018 but “jumped” in 2022, a phenomenon they attribute to the pandemic and the volatility of the stock market. 

By that time, they said, a majority—51%—of those close to retirement age indicated that they would consider converting at least part of their retirement nest egg into a lifetime-guaranteed annuity. And in the study they conducted in the summer of 2023 of 4,500 retirees and current employees ages 40-85 with at least $100,000 in investable assets, LIMRA found that interest grew slightly to 52%.

Annuity sales, they say, have been even more robust—in fact, LIMRA reports “record” sales in 2022 and 2023. They attribute that result to rising interest rates, as well as individuals’ interest in investment protection and guaranteed growth. So great is the interest in the latter, they say, that fixed annuities accounted for almost three-quarters of annuity sales. 

Data from October Three lends credence to LIMRA’s findings. They report that the volume of transactions in their annuity services “hit a record high” in 2023. 

In-plan 

The interest LIMRA found in in-plan annuities is even more striking. They report that 66% of all defined contribution plan participants likely would invest in an in-plan annuity if their employer offered one. And that’s cross-generational: LIMRA says that 75% of those in their 40s, as well as 64% of Millennials and even employees belonging to Generation Z were interested.

Among DC plan participants who are at least somewhat likely to select an in-plan guaranteed income investment option, the top motivators included: 

• more financial security in retirement because of lifetime guaranteed income (51%);
• could make retirement savings plan work more like a pension does (42%); and 
• being able to create guaranteed retirement income through the employer (39%).

And the Trend Continues

So far, 2024 is shaping up to be no different, says October Three. They report that their calendars are filling “rapidly” with such activity this year. 

Further, October Three notes that “robust” equity markets and current interest rates have resulted in continued improvement of pension plans’ funded status—which in turn maintains the attractiveness of pension risk transfer. And, they report, in April annuity purchase interest rates made it “an opportune time to purchase annuities.”

LIMRA, too, anticipates that interest in annuities will continue to grow. They base that expectation on pre-retirees’ grasp of the possibility that pensions and Social Security may not provide sufficient funds for them in their retirement. 

Still, October Three includes a caveat that although pension risk transfers have been “steady” so far in 2024, it can be “challenging” to predict trends in that market. Further, they observe, market volatility could spell change in current circumstances.