A new pricing plan for Jackson National Life Insurance Co.'s popular variable annuity living benefit riders is scheduled to take effect next week.
Starting Monday, Sept. 15, Jackson will apply a five-tiered pricing scheme for single life versions of its LifeGuard Freedom Flex and LifeGuard Freedom 6 Net guaranteed minimum withdrawal benefit contracts.
There is also a three-tiered pricing program for joint life versions of the products.
“It's a continuation of our philosophy of building variable annuity products,” said Greg Cicotte, president of Jackson National Life Distributors. “We try to give advisers options to be able to customize the product for each individual.” The five tiers are meant to enable clients to choose a variable annuity based on what means most to them: higher withdrawals or lower cost.
Jackson will also stop offering the optional income upgrade for both FreedomFlex and Freedom 6 Net as of Sept. 15. That program permits clients to take an income percentage as high as 5% at age 65 for the additional cost of 25 basis points, bringing the total rider fee to 1.5%. Based on the tiered system, these features match up with the newly titled Level 5, which will be unavailable for sale from Sept. 15 to Jan. 12. Reps were just notified of that development this morning, Mr. Cicotte confirmed.
Two components to understanding the tiers are income the client will get versus the cost, according to a June 11 filing Jackson made with the Securities and Exchange Commission.
First, there's a level of income. Lower tiers offer less guaranteed income at a lower cost, per the chart below.
See below for a breakdown of the costs across different tiers.
Distributors interpret Jackson's move as one that permits the wildly popular variable annuity seller to mitigate flows into its contracts without calling for an outright ban on 1035 exchanges into Jackson contracts.
Advisers might remember that last October the company decided to temporarily block transfers into its variable annuities, a repeat of a move it announced in late 2012. Effectively, such moves halt transfers for the remainder of the year.
With the new structure, however, Jackson can slow transfers and sales without rattling the reps who sell its contracts. For instance, with Level 5 sales being temporarily halted next week, clients can still choose to purchase the slightly-cheaper and slightly-less-rich Level 4 version of the riders.
“I think they needed to figure out a quick way to change the product slightly,” said Judson Forner, director of investment marketing at ValMark Securities Inc. With respect to the halt on Level 5, he noted, “It's not a good thing for the clients because they have one less option, but it's not the end of the world.”
To an extent, advisers and clients working with this product will need to be even more certain about when they choose to take income and how much income they want when buying this rider, noted Scott Stolz, senior vice president of PCG investment products at Raymond James Insurance Group.
“What will make this a little more challenging than others is that you have these five levels, but how do you know which one to choose? Which ones work best in which circumstances?” he asked. Raymond James has opted to not offer Levels 1 and 2, and it will only offer Level 3 for joint-life.
“We're not convinced there's enough value,” Mr. Stolz said of the lower tiers. On the other hand, “Level 5 is closest to the existing product, and I think Level 4 is competitive enough,” he added.