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According to the latest data from the Secure Retirement Institute, U.S. investors snapped up US$67.9-billion worth of annuities in the second quarter.ROMAN/iStockPhoto / Getty Images

While annuity sales in the U.S. have been surging in recent months, interest among Canadians has remained tepid. Yet, some experts say there are signs that could soon be changing.

According to the latest data from the Secure Retirement Institute (SRI) in Windsor, Conn., U.S. investors snapped up US$67.9-billion worth of the guaranteed lifetime income products in the second quarter. That’s 39 per cent higher than the same three-month period in 2020 and the highest total quarterly sales volume of annuities since 2008.

Meanwhile, Canada’s annuities market “seems to have more of a static demand that’s not growing but also not declining,” says John Yanchus, tax and estate planning consultant with the sales enablement team at Canada Life Assurance Co. in London, Ont. “It has been fairly flat over the past several years. There are no huge spikes up or down.”

Indeed, Canadian data from the SRI shows total quarterly annuity sales in this country have stayed within a fairly narrow range since 2017 – from about $4.5-billion to roughly $5.7-billion. In the latest year-over-year comparison available, annuities sales rose by 11 per cent to more than $5.7-billion in the first quarter.

The U.S. annuities market also boasts much more product diversity than what Canadians can access. In fact, the data show that uniquely U.S. products are driving a substantial portion of U.S. demand growth.

Sales of registered index-linked annuities (RILAs) more than doubled south of the border on a year-over-year basis during the second quarter, according to SRI data, rising 122 per cent to US$10.1-billion. Sales of RILAs during the first six months of the year have totalled US$19.3-billion, representing 105 per cent growth from the first half of 2020.

RILAs are among one example of annuity products that Americans can buy and Canadians cannot, though Mr. Yanchus also attributes the divergence between the two markets to commonly held misconceptions.

“Annuities are viewed as a method to capture retirement funds from people, and that’s purely incorrect, but it is a broadly held perception,” Mr. Yanchus says. “We actually have several annuity products with cash-back features ... in which you basically get all of your contributions back in some form or another, but I don’t think they’re well known in the Canadian marketplace.”

The gap in annuities interest and sales between Canada and U.S. is substantial, with Mr. Yanchus estimating that roughly 35 per cent of American retirees have “some type of annuity product in their portfolio, but in Canada, that figure is well below 10 per cent.”

Todd Giesing, assistant vice-president and head of annuities research at the SRI, says annuities have proven “particularly popular in this environment, where we’ve had volatility. And, obviously, with the global pandemic going on, it all makes investors uneasy.

“In the second quarter, we actually ... saw some pent-up demand,” Mr. Giesing says, adding that “people weren’t meeting with advisors or just weren’t focused on their retirement plans as much” at the beginning of the year amid widespread pandemic-related lockdowns before rebounding later into the first quarter.

But while Canadians have been lacking the same enthusiasm for annuities as Americans, there are some signs that long-tepid interest north of the border is beginning to change.

Kim Shaheen has been a financial advisor in Saskatchewan since the late 1970s. Although he has spent the past five years on disability due to a multiple sclerosis diagnosis, he still keeps tabs on the latest sales trends at his Regina-based advisory firm, and one recent transaction caught his attention.

“I saw an annuity had gone through and we don’t do a lot of them,” Mr. Shaheen says. “In fact, that was the first one we’ve done in a year and a half.”

Jonathan Kestle, president at Ian C. Moyer Insurance Agency Inc. in Ingersoll, Ont., has also noticed an uptick in annuities interest among clients in his community, which is roughly a half-hour drive east of London.

“There has been a shift,” Mr. Kestle says. “I think [clients] have come around to the fact that having your Canada Pension Plan and Old Age Security, which are both annuities, topped up, possibly with your own annuity from your private savings, to cover off your basic expenses is a pretty good way to create a stable retirement income. Advisors should be putting annuities on the table at least as an option.”

Mr. Yanchus of Canada Life offered some blunt advice for retirement-focused investors and advisors alike: “Forget what you think you know about annuities and open your eyes to the new world.”

In the U.S., Mr. Giesing of the SRI says annuity sales volumes “are going to come back to Earth” in the second half of this year as the pent-up demand from early 2021 subsides. In contrast, Mr. Kestle believes Canadian investors could spend that time playing catch up.

“I really do feel like that gap [between Canada and U.S. annuities interest] is going to start to close,” he says. “As the knowledge increases in the industry, as the need [for income] grows and more baby boomers retire, it all just culminates into more interest for annuities.”