Pru aims to pare benefits on popular annuity

Prudential Financial Inc. has filed a new variable annuity living benefit with the Securities and Exchange Commission. If approved, the swap will enable Prudential to replace its Highest Daily Lifetime 6 Plus with a less generous living benefit. The insurer updated its filing for the new product — slugged Highest Daily Lifetime Income Benefit — with the SEC on Monday, Dec. 6. The new product offers lifetime income based on 5% compounded growth on the annuity's highest daily account value, down from 6%, according to the filing. Moreover, the insurer has adjusted the withdrawal percentages available to clients: 3% for those 45 to 54, 4% for those 55 to below 59½, 5% for those 59½ to 84 and 6% for those 85 and over. Further, the newly adjusted living benefit expands the benefit base by 200% if the client doesn't take withdrawals before the 12th anniversary of the contract. Previously, clients had to wait only 10 years for the increase. It's the latest major tweak the company has made to its popular living benefit. Back in August 2009, the carrier introduced the Highest Daily Lifetime 6 Plus, replacing the 7 Plus version. This latest round of changes is effective Jan. 24, according to the filing. Low interest rates appear to be the main reason for the reduction in benefits. Prudential's asset transfer program for its Highest Daily benefit, which allows the insurer to shift VA customers out of equities during market gyrations, makes the carrier sensitive to interest rates — as do the features of the living benefit — said Tamiko Toland, managing director, retirement income consulting, for Strategic Insight. The guarantees themselves are supported by fixed-rate instruments, she added. “We had focused a lot on the cost of equity hedging because of the severity of the market drop, but now interest rates are where we're seeing the issue,” she said. “This interest rate situation has compressed returns.”