Following a period of disruption amid industry worries about income guarantees and levels of protection, variable annuity issuers have found some balance — at least for the moment.

Product development has slowed recently, with the focus shifting to new products that package modern investment concepts — alternative investments and outcome-focused strategies, for example — within a back-to-basics, non-guaranteed variable annuity product structure.

One trailblazer was Jackson National’s successful EliteAccess product, which offers several different investment strategies — including alternatives-based portfolios — but no guarantees for either death or living benefits. Now other firms are starting to follow suit, developing and issuing their own versions of advanced portfolio management concepts offered within a variable annuity. (Such strategies can often be tax-inefficient, increasing the appeal of investing through a tax-deferred structure.)

Though such new products are dwarfed by income-guarantee products — where issuers continue to fine-tune offerings with both new issuance and product modification — industry observers expect more of these types of products to hit the market this year, with sales expected to increase, as well.


Several notable product development initiatives and other carrier moves illustrate the shifts affecting the annuity market.

One example of the back-to-basics concept is AXA’s Investment Edge variable annuity, launched last October. It offers an extensive fund lineup through 124 subaccounts in a variety of styles, including aggressive allocations. The fee is 1.2% (B-share) or 1.25% (C-share); the contract also offers an income option called Income Edge, which is a non-life contingent withdrawal option available for one or two lives and only available on nonqualified contracts. The withdrawal percentage is determined by the number of years remaining in the withdrawal period and the exclusion ratio is set at the time of the first withdrawal.

Essentially, this is an income option intended to maximize the value of tax-deferred investing through stretched income payments that leverage the exclusion ratio to improve tax efficiency. There are no death or living benefit guarantees.


Income guarantee products are also still very much alive and in focus.

Great West launched Smart Track II, a new B-share version of its existing contract with a 1.00% fee. The contract offers the same 67 subaccounts as the existing C-share and carries the existing, uniquely structured lifetime withdrawal benefit.

This guaranteed benefit costs 1% and combines an age-banded withdrawal structure with withdrawal percentages tied to the 10-year Treasury rate. The single-life version withdrawal percentages range from 3% to 8.3% overall, and from 4% to 8% for a 65-year-old. The joint life version offers withdrawal percentages from 2.7% to 7.47%, with a 65-year-old getting from 3.6% to 7.2%. The withdrawal percentage can bump up on the next age band on the anniversary. Step-up is highest anniversary value.

Issuers are engaged in multifaceted product development: Non-guarantee products focused on tax deferral are beginning to proliferate on the non-qualified investing front, while carriers continue to attempt to develop workable income-guarantee products for the group-qualified market. This is in stark contrast to the environment in the mid-2000s, when virtually all development was focused singularly on income guarantees for the retail market.

One interesting example is Lincoln’s recently launched Secured Retirement Income, a group contract with four versions. The I-share carries fees ranging from 0.05% to 0.65%. The contract includes a lifetime withdrawal benefit as a standard feature, with a fee of 1%. The benefit offers an age-banded withdrawal structure (5% single life; 4.5% joint life for a 65-year-old), and includes a highest anniversary value step-up.


Elsewhere, Minnesota Life updated its W&R Advisors Retirement Builder contract with the Retirement Builder II; the B-share has a 1.3% fee and the L-share has a 1.7% fee. The 29 subaccounts are managed by Ivy Funds. The contract offers a series of benefits called MyPath Core. The lifetime withdrawal benefits cost between 1.2% and 1.5%, with withdrawals ranging from 5% to 5.25% (single life) or from 4.5% to 4.75% (joint life).

The flex version is the base version with a 5% lifetime withdrawal percentage and two step-ups: a fixed annual 6% step-up and a highest anniversary value. The ascend version bumps up the fixed annual step-up to 7%. The summit version offers a higher lifetime withdrawal percentage of 5.25%, but does not include the fixed percentage step-up, simply the highest anniversary value. The benefits are attached to a Waddell & Reed custom contract, the W&R Advisors Retirement Builder II B.

Minnesota Life also released a contract for Waddell & Reed. The Advisors Retirement Builder II contract carries a series of four lifetime guaranteed minimum withdrawal benefits. Each is set up with a separate fee, step-up and withdrawal percentage. The suite of benefits includes several elements: withdrawals for a 65-year-old ranging from 4% to 5.25%; step-ups from zero to 6%; and fees from 0.45% to 1.4%. The B share costs 1.3% and offers 29 Ivy Funds subaccounts.

Finally, Transamerica released an O-share to go along with the other share classes of its TA Variable Annuity. The cost is 0.9%. Living benefits include the company’s two guaranteed lifetime withdrawal benefit versions. The contract also carries four death benefit versions and 56 subaccounts.

Frank O’Connor is product manager for annuity solutions at Morningstar.

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