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.
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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.