Three-in-four consumers say they would be very interested in a financial product providing guaranteed lifetime income--even if they were unable to access the principal investment.

That’s according to “State of the Insured Retirement Industry,” a new report from the Insured Retirement Institute (IRI), which found that consumer demand and new marketing opportunities will fuel annuity growth for years to come.

Investor concerns over longevity risk, fears about Social Security insolvency, uncertainty about how to create lifetime income and SECURE Act annuity provisions will all drive projected growth in annuities, IRI said.

Some three-in-four consumers ages 35-to-44 say they would be very interested in a financial product providing a greater amount of guaranteed lifetime income than a nonguaranteed alternative, even if they were unable to access the principal investment, the new research found.

In addition, as many as 95% of consumers are very or somewhat interested in guaranteed lifetime income in an annuity, the IRI found. The most important traits consumers want in an annuity are “guaranteed income each month” and “will not lose principal.”

Equally important, only 28% of Baby Boomers receive or expect a pension, the trade group noted.

“While persistent low interest rates may impact sales in 2020, the SECURE Act lifetime income provisions and the increased availability of newer products such as structured annuities offer promise of greater consumer demand and access to  lifetime income products,” said IRI, whose members account for 90% of annuity assets in the U.S.

Pew Research Center estimates that 10,000 Baby Boomers will turn 65 every day for the next 13 years.

While Americans report more wealth, longer lives mean longevity risk and the need for assets to last longer, IRI said.  Fidelity Investments reported the average 401(k) balance was $105,200 in the third quarter of 2019, down slightly from an average of $106,500 in the third quarter of 2018. For long-term savers (those in their plans for 10 or more years) the average balance reached a record $306,500 in Q3 2019, versus the previous high of $306,000 in Q3 2018.

Americans are also growing more dependent on their assets to generate sufficient retirement income. IRI research on Americans retired for between five and 15 years finds that 79% of retirees with at least $100,000 in retirement savings receive pension payments, with 64% citing a pension as providing at least 25% of their income.

But only 28% of Baby Boomers receive or expect a pension, IRI noted.

Demographic shifts will also have far reaching implications, IRI said. The populations of older and younger Americans, and especially older, are expected to increase in the next 10 years, while the segment of the population generally perceived to be in peak earning years, and historically the bulk of the target market for annuities, is projected to shrink.

Product innovation in the annuity space will continue to be brisk, IRI said. Fixed indexed annuities (FIAs) continued to capture more sales than any other annuity product type. While off recent highs, FIA currently account for almost one-third of total annuity sales, having surpassed variable annuities with lifetime income benefits in 2018.

Fee-based fixed indexed annuities are just beginning to reach the market, with little sales activity to date. Sales have grown, but still represent less than 4% of total annuity sales. However, this trend foretells more versatility for fee-based advisors in terms of the types of annuity products that can be seamlessly used in wrap accounts. Fee-based variable annuity product issuance has slowed, with existing fee-based annuities closing to new investors at approximately the same amount.

Insurers including Nationwide, Lincoln National, Pacific Life, and Great American received private letter rulings (PLR) from the Internal Revenue Service (IRS) asserting that the payment of an advisory fee from a variable, fixed indexed, or hybrid non-qualified annuity can be structured so as to not give rise to a taxable distribution, the IRI said.
.
The IRI said it is up to the advisors and agents to “work diligently to ensure that consumers are aware of the longevity, health care, and other risks they face in retirement, that they adequately protect themselves against those risks, and that they are educated about the solutions that can protect them.”

The SECURE Act, which became law in December 2019, will also drive myriad annuities sales, IRI said. It allows plans to offer lifetime income products and will require plans to provide participants with an illustration of how much monthly income can be generated by a retirement savings account.

The legislation “will make it easier for workplace plans to offer lifetime income choices to help workers create a monthly, protected income stream in retirement,” IRI President and CEO Wayne Chopus said.