Here's something you don't see every day: a fixed deferred annuity with a guaranteed lifetime withdrawal benefit. And it might be a good competitor against a number of existing variable and indexed annuities.
New York Life Insurance Co.'s Clear Income acts like a traditional fixed-rate annuity: It grants a guaranteed initial interest rate for a seven-year period, after which clients are up for an interest rate that renews every year. The surrender schedule for the product spans seven years.
What's different is that the insurer is offering a guaranteed lifetime withdrawal benefit, a feature that grows clients' income benefit base — the notional number used to calculate withdrawal benefit payments — for up to 10 years at 5%. That additional feature costs 75 basis points. The withdrawal rate is tiered and sits at 5.25% for clients aged 65 to 69.
The life insurer has its eyes on the market for variable annuities with living benefits.
“We think about the variable annuity market, which is still $80 billion a year in sales,” said Ross Goldstein, managing director at New York Life's retail annuities marketing division. Given the combination of Clear Income's rates and roll-up, “our guaranteed product compares favorably to the variable annuity," Mr. Goldstein said.
Mr. Goldstein noted that while variable annuities offer upside opportunity, since clients can invest in the equity markets, investors tend to put a large portion of their VA assets in fixed accounts, which credit a fixed rate of interest.
Indeed, data from Morningstar Inc. show that during the third quarter of 2014, fixed accounts ranked third in terms of market share of total net VA assets, accounting for 9.34% of assets. Moderate allocation and conservative allocation were in first and second place, respectively, for where variable annuity net assets were invested.
Clear Income came out in October, but has not been announced.
Given the novelty of the New York Life product, Jeremy Alexander, president of Beacon Research, noted that it would be logical to compare it to what's available in the indexed annuity market. Both products are aimed at similar consumers.
“This would be for someone who is conservative, closer to retirement and looking for a guaranteed floor of income at retirement,” Mr. Alexander said.
Whether a client will end up with better results in a fixed annuity with a living benefit and roll-ups or in an indexed strategy with a cap and similar living benefit features is less clear, however, he said.
Mr. Alexander found the Clear Income rider to be on par with what's available in the indexed annuity market, but he added that advisers need to consider rider fees and insurer ratings when comparing products.
“I found riders that were more expensive from lesser-rated but strong companies, and riders that were more generous at a similar price, but none of which had the same rating as New York Life,” he said.