DSG recently completed our 7th annual study of retirement income products, issues, and market trends. This research, which has evolved each year to keep pace with changing industry and market activity, is based on a survey among industry participants as well as a series of in-depth executive interviews. The survey, conducted online, resulted in 42 respondents, and this was supplemented by 14 executive interviews.

Market Activity

The two most commonly offered products for providing retirement income are SPIAs and variable annuities with guaranteed living benefit riders (GLBs). From the 42 survey respondents, availability of retirement income products is listed on Table 1.

The most popular of the GLBs are the GMWBs (guaranteed minimum withdrawal benefit riders), which account for nearly half of total GLB-related sales.

As of mid-2006, there are 15 firms that provide stand-alone IVA products. Three of these 15 companies have elected to become "inactive" in the IVA business for the time being. With seven more companies identifying themselves as "IVA Substitute" providers (actively promoting a deferred variable annuity for the purpose of using its payout provisions, as an IVA alternative), the current total of companies providing variable payout annuities is 22.

Total industry sales of IVA products have continued their downward trend, dropping to a total of $248 million for 2005. This represents a significant decrease from the previous year, and is the 4th consecutive year of sales declines. IVA Substitute sales, on the other hand, have increased to $980 million in 2005.

Product/Product Features

Nearly 74% of all companies surveyed now offer at least one GLB rider with their deferred variable annuity, up from 63% last year, and GMWBs are the most popular at this time (Table 2). GLB product features are still evolving in reaction to competitive pressures. Currently, 81% of GLB products have a step-up feature to lock in market gains, and many of these companies have introduced a "for life" benefit with their GMWB. 82% of the companies (who responded to the question) expect that GLBs will experience double-digit growth rates over the next several years.

Very few product feature changes on variable payout annuities have occurred since last year's survey, reflecting the reduced emphasis on these products.

Focus on the Retirement Income Market

Following prior year trends, many companies continue to expand their efforts in the retirement income market, with 71% of respondents increasing their level of activity in this arena. In the survey, 19% of the respondents have made a major commitment since last year, and another 38% indicate they have made a "significant increase" in application of resources since last year.

Summary

The level of interest, activity, and innovation in the retirement income market continues to expand. There is no doubt that the level of competition is also increasing, leading to a broader range of products and solutions than in previous years. Where focus a few years ago was mostly on payout annuity products and systematic withdrawals, GLBs are capturing more and more of the market, with a particular emphasis on GMWB options. With respect to income, however, it is important to note that it remains unclear if the GLB options are being purchased primarily for protection or for actual use as a retirement income generating method.

It appears that the evolution toward a broader "retirement income solution" rather than a single product approach may be the current trend, with some companies already providing, or planning to provide, more "holistic" solutions for retirees.

Those companies that can provide packaged retirement income solutions based on a broad set of options, communicate their advantages to clients via well-educated advisors or more comprehensible communications, and then use the tools and technology to make the solutions simple and costeffective will likely become the leaders in this new world of retirement. DSG

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