US - Hewitt Associates expects a significant increase in demand in 2005 for its new annuities solution, which enables US companies to provide annuities to their employees as rollover options, rather than as options under their 401(k) plans.
Hewitt says almost 40 of its US clients are currently offering the product, launched late last year, to more than 600,000 employees. The consultancy expects the number to grow to 70 companies and 1.5m employees by the end of the year.
In the past, annuities in the US were only offered as options under employers’ 401(k) plan or through retail accounts. Hewitt teamed with Hueler Companies to offer the new annuities solution, which it says enables employees to “shop around” to find the best annuity to meet their needs.
Stacy Schaus (pictured), practice leader, personal finance at Hewitt, said it was a new concept in the US to have the annuities “outside the plan yet on an institutional platform”.
“This is a nice middle ground where it’s employer-introduced but it’s outside of the plan and it allows the employee to go out and have the different insurance companies bid at a group rate so you have institutional rates instead of retail rates.
“It basically gives you a shopping platform, it’s very flexible and the best part is it’s an anonymous shopping platform – the insurance companies don’t know who the individual is until they say ‘yes, I’d like to go ahead with this one’.”
Schaus said larger amounts of portable, self-managed money was driving take-up of the solution.
“You have money coming from defined contribution which is growing in a larger percentage of retirement savings and then you have more portability on the defined benefit side so that money needs to go somewhere and people are not always comfortable managing that money day-to-day so in essence an annuity can create their own personal pension programme,” she said.
“One, you have more money that is being ported away and second, you have people more concerned about having assets that they won’t outlive. Third, if they have the communication where they can understand the value and they have the hand-holding to be able to annuitise part of it to create a personal pension, I think that all of that combined will result in more people taking that route.”
PP has compiled a list of what to watch out for over the coming months.
Canada Life has signed a £351m bulk annuity contract insuring the pensioner liabilities of 2,510 members and dependents in the AA UK Pension Scheme.
In this week's Pensions Buzz, we want to know if you believe there is ever a case for combining retirement savings products with other savings products, and if the PPF levy for sponsorless schemes is appropriate for DB consolidators.