Welcome to Insider Insights, where we dive into hot topics facing the financial services industry. Today, we’re teaming up with Nasdaq to recognize Annuity Awareness Month. James Caparosa, Director of Insurance Sales at Nasdaq, sits down with John Carroll, Senior Vice President and Head of Annuities at LIMRA, to explore the vital role annuities play in retirement planning and long-term financial security. Listen in as they discuss the latest trends shaping the annuity marketplace, shifts in consumer adoption, and what both advisors and consumers need to know right now.
James Caparosa, Director of Insurance Sales, Nasdaq: Hello and welcome. I'm James Caparosa and we're live from Nasdaq MarketSite in Times Square.
June is Annuity Awareness Month, a time to spotlight the vital role annuities can play in retirement planning and financial security. As a globally recognized and trusted leader, empowering the world's financial markets, Nasdaq is proud to support Annuity Awareness Month and the many partners we serve across the insurance industry who make these products available to investors.
Today, we're diving into the evolving landscape of annuities, how they're being modernized, how they can complement a broader financial plan, and why awareness and education around these products is more important today than ever.
Joining me is John Carroll, senior vice president, head of Annuities, LIMRA and LOMA, and he's gonna be diving into current annuity market trends, adoption, and what consumers and advisors should know. John, thanks for joining us here at Nasdaq.
John Carroll, SVP, head of Annuities, LIMRA and LOMA: Great, thanks. Great to be here. Great to see you.
James: Yeah. Awesome. So, let's start, you have a great kind of vantage point at LIMRA and LOMA and the seat that you sit. You guys provide such great research and let's talk about the role that annuities play in addressing the growing retirement crisis in the United States.
John: Yeah, it's a great question. I mean, you think about annuities have been around literally forever, right? They were around in the Roman Empire, right?
James: True.
John: It's a very simple idea. Give a lump sum, get back stream of payments, right? So that's worked its way through for lots of years. Go back about a hundred years ago, right, here in the United States, the core retirement was pension and social security, right? Social security is still there. Pensions are a little bit different now, right? So, you think about 40, 45 years ago with the introduction of 401k, right? The shift in pension—so, when you talk about the crisis today, that's kinda what I think people are thinking about, right? It's the pension that guaranteed income stream has kind of gone away and people are nervous about social security.
So where does the annuity step in? So, the annuity steps in, in terms of, think of it, in terms of who's retired today, they're living comfortably, right, however, they define that on pension and social security. Then, you know, you get to the, and the baby boomers are still going through
and they have about 40% coverage of availability of a pension but start looking out a little further. Gen X drops down to like 31%, have a pension. Uh, millennials is 24%, so three out of four do not have it. Right? So now you have this giant gap.
James: Yeah.
John: Where do you fill it with this kind of a pension-like product, a retirement income product. And that is where an annuity can fit in. That is what it's built to do, right? And again, we always say this is one of the few things you can say the word guarantee. We can guarantee an income stream that you cannot outlive. So, you think about that. And then the other part of this that I think is less, it's not quantifiable, but it's the peace of mind aspect, right?
So, our research shows people who own annuities across all wealth segments feel more confident in achieving their retirement lifestyle, retirement income. But also, they're more confident in not running out of money, right? They are living to be 90 or 95. Right. Everybody says we're all gonna live to be a hundred.
James Yeah.
John: Well, if we do, right, you cannot run out of money. So, you couple that income piece with that peace of mind, that's pretty powerful, right? And again, it's something I think the industry needs to do a better job. We should do a better job
James: Yeah.
John: of playing up the peace of mind aspect of owning these as opposed to just the, the dollars and the numbers. Right?
James: So, you just, I mean, hit on a lot of great points and I love the, the history lesson, right, taking us back to Roman times, but that's so true. And you know, I think you nailed it with the crisis part with social security and pensions and things that have people concerned, which is a good segue into, okay, now what's the next 5, 10, 15, 20 years look like from a product innovation lens?
John: Sure.
James: Are there insights there that you might be able to share?
John: Yeah, I think there's been a lot that's been happening, right? So annuities here in the States have been around for a long time, and it was generally fixed annuities and variable annuities, right? And they're pretty much on the extremes.
What we've seen over the past 10 or 15 years is real innovation in the index annuity space, right? So again, start, let's start with RILA, registered index, index-linked annuities. Uh, 2011, they didn't exist, right? There was nothing when Equitable came out. I dunno if I can say that, but Equitable came out with the first one. And so, you go back to 10 years, let's take a 10-year block.
10 years ago, sales in RILAs were less than $4 billion. Last year, they were over $65 billion. Huge, huge growth, right? From nothing to very significant. Why? Well, you think what a RILA does, it's combining all the good features. So, you're taking, that is equity oriented, right? It's market oriented. So, you're looking at the variable annuity side of the world, and yet you have the ability to control some of your risk, right?
Not to get into a big product lesson, right? But it's important that you have underlying indices, right, that are market based. But in a RILA you can say, if you wanna have protection, there's downside protection. That's the key. The more protection you want, the less you get on the upside, you give up on the upside.
James: Yep.
John: And vice versa, if you want more upside, you give up protection. So, here's this buffer, right, that you get. But people are very comfortable with that, right. Everybody likes upside, but they, they fear loss more, right? So, to have that I think, explains this explosive growth. Then you go over to the fixed index annuity, right? The FIA. Been around longer, right; started from a higher base, but 10 years ago that was $50 billion. Last year was $127b, right? So, a double in, in 10 years.
James: Yeah.
John: Um, what's that? Well, that's more like a fixed annuity, right? You're getting a crediting rate. Um, but again, that can move. It's an underlying, you know, equity index. So again, depending on how the index does, it depends on how you might do, but there's still that underlying floor.
James: Right.
John: So, those two things have changed everything, right? Fixed annuities have had a great run, but that's very much driven by interest rates.
James: Yeah.
John: Interest rates come down, fixed sales will come down. These two have been low-rate environment, high-rate environment, every year, setting new records. So that's a big deal, right?
Two other things I think are interesting from a product perspective that are newer, I'd say emerging, but could be really meaningful, 10, 15 years down the road. One is the fee-based annuity, right? That the IRA market is looking at. IRAs understand annuities – they get it, they are, but they don't fit their business model, right? No commissions, no upfront fees, no surrender charges. Well, the fee-based product, it's that, right? There's, there is none of that. So, and again, it's very small, but we've seen that business double in the past five years, right? Now, it's only about $8 billion, but it's $8 billion, right, it was zero, you know, five or six years ago. So, um, that's something different.
Then finally, something that's coming, and we've talked about this for decades, is the contingent deferred annuity, right? So that's taking, stripping out the income feature and bolting it on to a portfolio. Could be indices, could be ETFs, could be equities, whatever. And I talked about this at one of my firms 20 years ago, right? But the, the technology wasn't there, the economics weren't there. Well, that's here today, and that's something you're gonna see more and more of certainly going into next year and forward - this ability to bolt on the income benefit and keep the assets with the advisor, keep them, don't have to give them up to the carrier. That's a big deal. Yeah. So those are two I think, that are still little but could be very influential down the road.
James: Great. I mean, great, great, great answer to the product innovation side of things. I think you really highlighted how carriers have adapted to, you know, the changing needs of the consumer. Yep. And a lot of that you touched on earlier is around the behavioral finance piece of it, the psychology of it. You know, making investors feel safe
and, and comfortable. So, are there best practices maybe that LIMRA sees in, in driving adoption at that product level with different carriers and products?
John: I, I think so. I wouldn't say best practices, but what people do who are doing it well.
James: Yeah.
John: It's, it's a little different, right?
James: Yeah. Fair.
John: Is they're really seeing, putting the annuity in the center of this whole discussion. So again, I go back to what we talked about, it's been around forever, right? You have these challenges that are out there. Now it's saying, okay, let me, what's retirement planning all about? Well, it's saying, okay, what do you, how much money do you have? What are your sources of income? Do you have a pension or what's your social security and what do you need? What, what do you need? And, and let's, let's do the math.
Well, there's an income component in there, right? So, a smart advisor, a good advisor will start to say, this can really play a role, especially the way they are now, right? Whether it's bolted to an IRA or this contingent, whatever it might be. That's something that you can bring into the picture. The hard part is we, we, as an industry, it's very hard for us to, to illustrate that, right? The software isn't really great there – getting better still early. Um, but they can show it, they can show to people, Hey, if we did this with this portion of your income, look at the retirement income stream, right? And what that can allow you to do is say, let's stay invested with the rest of your money. Let's not go to cash, let's not go to short term securities 'cause inflation and, you know, uh, just pricing inflation and, and all different things can just eat you up over time. So, we gotta stay invested. But you have that peace of mind. So that's how people are using it and kind of embedding it into the retirement planning.
Um, I think one thing we're starting to hear a little bit more about, which is kind of interesting, is, um, looking at it as an asset class, right? And really saying this is a separate part of the portfolio, whether it's for managing equity volatility or generating the income, it should be viewed somewhat separately, right? It's not this thing that sits over here by itself. It's part of your whole portfolio. And again, it can allow you to do different things, uh, inside of what you're trying to do.
James: Yeah.
John: Um, and then finally, just in, in terms of platforms, it is coming, um, there's a couple of major platforms out there that do now allow at least fixed annuities and single premium annuities to, to be reflected. So, it's a start.
James: Yeah.
John: That wasn't there at all before.
James: Right.
John: So at least now you can show it and you can apply that same illustration and bring in other products. It doesn't just have to be that.
James: Yeah.
John: That's just showing what this can do for you. So, a lot of things happening there. I wouldn't say, you know, again, not best practices, but these are things people were doing. A lot of 'em are starting to do and think about.
James: It's refreshing to hear you say like, kind of, there's emerging trends might not be there yet, right?
John: Yes. Yes. That's right.
James: Things are starting to, to progress. And I love how you mentioned kind of it's not what the product does, but what, not what it is, but what it does, what it does for, for the investor. That's a hundred percent.
That's, um, a lot of our conversation so far has been about retail and the individual investor and how annuities fit their individual plan. But another trend that we're seeing is, you know, annuities kind of start to reach into institutional plans and, and work—workplace benefits and 401(k)s. Um, any insights or research that LIMRA has in, in that space?
John: Yeah, we've been doing a lot there recently. Um, our head of research is a big fan of this, so we've got a lot going on in that space. And you know, we refer to it as in-plan annuities, right? And, you know, it starts with the Secure Act 2.0, right? That clarified or took away some obstacles to having annuities inside of qualified plans. And you've seen an explosion since then, right? So, let's look at some of the data, right? You look at, we think, we estimate based on our studies, about 14% of plans currently have now, since the 2.0, have some version of an income annuity in their plan. About a quarter of plan sponsors are actively looking to put it in. Now, again, this was only a couple years ago that this was even available, so you're starting to see it move, right?
The industry's role has to be education, educating sponsors, educating advisors, right. Showing how this can work. The operational side's gonna be a little clunky, I think for a while, but some of the products that are coming up are embedded in target date funds, right, that's a big deal, right? If you're just picking the target date fund, you already get it.
James: Right.
John: So that's huge. So, we're seeing, we've got, I think, 15 carriers are now in the space.
James: Yeah.
John: Um, it's a very hot topic, right, 'cause you do have to be big, I think, to be able to take it down. But the good news is, no one or two carriers can control that market. It's massive, right? So, you need the whole industry to come in and say, how can we help here? And you know, you think about where that comes in, think of the traditional annuity, it's really a little bit older, right?
Um, this is where you can start getting people in their twenties and thirties every paycheck, right. Putting a little bit into it. We think that talk 20, 30 years down the road could be a significant impact on what retirement looks like addressing the crisis, right? You've been buying this little thing since you were 25, and by the time you're 60, it could be meaningful in terms of what it's gonna point. And you didn't even know, right, you didn't even pay attention to it. So, I think that plus the fact that people talk about their 401(k)s, it’s in the press all time, annuities are now mainstreamed in the retirement space, right?
James: Right.
John: I think you'll be hearing about it more. You'll be hearing about it at work. It just helps promote the whole idea that these things really do work and they're good for you.
James: Yep. And, as far as the reason why we're, we're here, uh, for June and Annuity Awareness Month, I mean, I think you just hit the nail on the head in what that does for the awareness and education piece.
John: Yeah, absolutely.
James: Right. The more prevalent annuities can become and the 401(k), the workplace plans are such a big part of where everyone looks every day.
John: Yeah, yeah.
James: It only helps the overall business.
John: That's right, that’s right.
James: Um, and another piece that you hit on that maybe I wanna kind of go back to and close with is the education piece.
John: Yeah.
James: And how important that is for not just advisors, but investors.
John: Yeah.
James: Um, so if there's one place someone's listening and they wanna go and enhance their education and awareness on annuities, would there be one place that you would maybe send them to get started?
James: We have some great stuff on, on our website, but we're not a consumer website. So, um, it would really be at the carrier level.
James: For advisors.
John: Yeah. For advisors, for carriers, some great stuff on there. Our partner trade associations have some good stuff on this. Um, it's still new. There's not a ton out there. Um, but we do have some really good in-depth research on in-plan and from a plan sponsor, from a consumer, a participant.
James: Yep.
John: And from an advisor perspective. So, we've done a lot of that.
James: Yeah. Um, I mean, I want to thank you. I think overall LIMRA has done a, a, it's a such a core piece of the research for the industry and stats. So, the work that you guys are doing, thank you very much. Yeah, Thank you. This is great. Yeah, It's fun. This was a lot of fun.
So just to, to wrap up today's conversation, I'd like to, to thank John for, for joining us here at Nasdaq and helping to remind everyone of the critical role annuities can play in helping Americans secure a more predictable and dignified retirement. While a main focus of annuity awareness month is education and advocacy, I hope you come away from this conversation feeling empowered, empowered to ensure individuals, advisors, and institutions alike have the clarity and confidence to navigate today's evolving retirement landscape. Thank you for joining us in elevating this important conversation, and let's continue working together to build a stronger financial future for all. Thanks, John.
John: Great. Thank you.
Thanks for listening to LIMRA's Insider Insights podcast series. To hear future podcasts, subscribe at LIMRA.com/podcast.
