Sometimes it’s nice to hear other people are going through the same things you are, isn’t it? Shared experience can suggest there’s a degree of logic and reason behind events in one’s world.
Well, it turns out that a recent article in the Financial Times said that annuity sales in the U.K. last year reached a 10-year high, and cited high interest rates and economic uncertainty as contributing factors. Those happen to be two reasons why observers think the U.S. annuity business has been setting records in recent years and hit a total of $400 billion for the first time in 2024 (I would argue product innovation was a third reason for U.S. growth; I am not sure if it was as big of a deal on the other side of the pond).
I think moves in the Federal Funds Rate correlated well with U.S. fixed annuity production in 2024. That rate reached a high of 5.33% in the spring and summer; Fed cuts starting in September coincided with a drop in production on the fixed side in the fourth quarter (as of this writing the rate’s 4.33%). On the year, fixed-rate deferred annuity sales were down by 7% according to LIMRA. Indexed annuities experienced a Q4 dip but still had a record year.
So in 2025 we may be looking at lower fixed-rate deferred production, although that could change if the stock market swoons and risk-averse investors don’t mind purchasing MYGAs with lower crediting rates than were available in the recent past. Beyond that, will other product types pick up the slack and keep the total number strong? Time will tell.
The FT piece said that despite the sales boom, U.K. annuity purchases are a relatively small portion of the financial pie. The same holds true in the U.S. The most recent figures I have on household annuity ownership – courtesy of Cerulli Associates and admittedly dated – are that 19% owned a fixed annuity and 11% a variable annuity. I don’t think those percentages have changed much of late.
What will get more households to buy annuities? I think it’s long been said that the answer to that is on the income side of the equation. Incrementally, U.S. income annuity sales are trending upward, which is a positive sign. That means more Americans are open to annuitizing at least a portion of their assets.
An expert quoted in the FT article suggested retirees consider combining annuity payments with “drawdowns” (which would be withdrawals, systematic or otherwise) rather than choosing just one or the other. I am hearing the same kind of messaging here. It makes sense to me that retirees would not put all their eggs in one basket. I think it also stands to reason that, if more people annuitize and report good results, their neighbors will follow suit.
