Consumers, professionals split on guaranteed lifetime income products

Study of data snapshots taken before and during pandemic shows counter-intuitive trajectory of perceptions

Consumers, professionals split on guaranteed lifetime income products

While the appeal of annuities should rise following a severe bout of market volatility, such as the one triggered by the first outbreak of the COVID-19 pandemic last year, a new study suggests that consumers might have come away with totally different lessons.

Drawing from research conducted in the days leading up to the pandemic and a follow-up study done in the thick of the crisis, a new white paper from Greenwald Research and CANNEX sought to determine how U.S.-based consumer and financial professional perceptions of guaranteed lifetime income (GLI) changed over the period.

The research found that between February and August 2020, consumers’ perceived value of guaranteed income experienced a marked overall decline from 71% to 63%, and they grew less likely to agree that it’s important for people to have a strategy to protect their portfolio against significant investment loss.

That’s despite the fact that during the pandemic, nearly half of consumers (46%) reported that they felt less financially secure and nearly a quarter (22%) said they were less comfortable with risk.

“The decline in consumers' perceived value of guaranteed retirement income is counterintuitive, given in past years we have seen increased interest during periods of volatility,” said Doug Kincaid of Greenwald Research, who directed the study. “One explanation is that, by August, many consumers experienced how quickly markets can recover and were as a result less concerned about investment loss or market volatility.”

Another possible explanation, Kincaid said, is that some investors may have become more focused on liquidity and be more keen to maintain their current financial strategies in the face of financial and general uncertainty.

On the other hand, the paper found that half of financial professionals perceived client receptivity to GLI products had grown since the arrival of the pandemic, and 25% reported an uptick in clients asking about annuities that provide guaranteed lifetime income.

Looking at financial professionals’ opinions, the survey found that they deemed GLI products more appealing in the context of the current interest-rate environment, with positive sentiment jumping from 42% to 62% between February and August. The value of GLI products in relation to stock market conditions, meanwhile, remained high (65% in February and 66% in August).

The belief in GLI products’ portfolio-diversifying benefits was also observed to rise among financial professionals.

“Over the six years we have been conducting the GLIS study we have seen a consistent disconnect between financial professionals and consumers, with financial professionals usually underestimating consumer demand,” said Tamiko Toland, director, Retirement Markets at CANNEX. “Financial professionals clearly see greater value for GLI and believe that their clients are more receptive to the message. The pandemic has created a new impetus to engage with clients who—despite these unexpected results—continue to see significant value in guaranteed lifetime income.”