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Demand for annuities and other guaranteed investment products have been rising since the start of this year, but the second quarter is when the market really took off.
The latest data from LIMRA shows annuity sales in the U.S. hit historic new highs in the second quarter ended June 30. Total sales of US$77.5-billion is almost US$9-billion higher than the previous record set in the fourth quarter of 2008, at the peak of the global financial crisis.
While the latest data for Canadian annuities sales have yet to be released, Peter Wouters, director of tax, retirement and estate planning services at Empire Life Insurance Co., is expecting a similarly impressive surge. He spoke with Globe Advisor about his outlook for the market.
Are annuities being perceived differently now than they have been in the past?
If you ask people to describe, generically without naming the product, the features they would like in a plan in which they could save some money or generate a pension in retirement, they describe a segregated fund or a guaranteed withdrawal benefit plan, or an annuity. You tell them what it’s called and they’ll say, ‘Oh no, I don’t want one of those.’ There’s a bias in what they are, and it’s not just held by clients but advisors as well because they think they can do better. That mindset is changing.
Over the past two and a half years or so, people have found out through the pandemic how exposed they are to their health, their parents’ health, and the vulnerability of life and finances. Now, when you have a conversation about, ‘What is important to me,’ all of a sudden, annuities become a lot more attractive.
Is demand already peaking given interest rates have risen so rapidly this year?
The big hits are still to come because the biggest interest rate increases have just happened in the past month or so. The stats out there are for the first five months of the year, but since then, you’ve had [significant] increases, and they’re going to take a couple of months to sink in. Then, the word has to get out that, perhaps, now is a good time to buy a guaranteed investment certificate for part of a portfolio or maybe set aside a block of money to get a payout annuity.
The interest is really growing – we are getting a lot more inquiries. I think that some of that will take a little bit of time, especially when you’re looking at dealing with estate planners who are taking a more deliberate approach. I expect that sales will definitely start to increase over the second half of the year.
Has the client profile for those interested in annuity products changed lately?
They’re not just for older people anymore. Annuities are going to be attractive for them, but also for the number of children who have been taking care of their parents in recent years.
Now, we are going to be setting up these kinds of plans for people who are much younger. They’re not in their 70s, they’re in their 20s or 30s. It’s not a lifetime annuity either, it’s typically something over a 10-year period, so the rate is going to be the same whether it’s for a 30-year-old or a 60-year-old. We are just guaranteeing it for a period of time, and it doesn’t matter how old you are. Those discussions are becoming a much more active part of conversations that advisors and financial planners are having and that’s going to result in more sales.
This interview has been edited and condensed.
- Jameson Berkow, Globe Advisor Reporter
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