Annuities are being promoted by the Obama administration as a way to give Americans a better shot at secure retirement. This is based on a report from the administration’s Middle Class Task Force that came out last week. It’s good news for the annuity sector, which typically isn’t very popular with consumers.

Annuity direct mail
Direct mail for annuities started off strong in Q1 2009, but for the year in full, estimated mail volume was down compared to 2008. Perhaps with Obama’s support of annuities, marketing support will increase in 2010. New York Life Insurance is the top mailer based on 2009 estimates, followed by USAA and Fidelity.

Direct mail offers rely on “guaranteed income” and tax advantages
New York Life sends out co-branded offers with AARP. The messaging focuses on annuities as a way to “guarantee income” in retirement.

USAA also markets based on guaranteed income. The company’s letters refer to guaranteed income with “no market risk” and the tax advantages. USAA also uses email to promote annuities, encouraging recipients to consider an annuity in light of the “market downturn.”

Fidelity’s offers focus on the tax deferment advantages of annuities. One offer asks, “how can you tap into the power of tax deferral…to help make sure your entire portfolio is more tax efficient?”

Annuities in 2010 and beyond
Despite the endorsement of the Obama administration, annuities still face some big hurdles. Investors seem to want to steer clear of them and consumers aren’t terribly interested either. The following items in discussion might have positive impact on the industry:

Automatic enrollment – The Obama administration could nudge employers into automatically depositing some amount of new retiree’s 401k into a basic annuity. If after a certain time period the retiree decided they did not like it, they could cancel it and get the money back with no penalty.

Tax incentives – A House bill was introduced in June 2009, which calls for waiving 50% of the taxes on the first $10,000 in annuity payouts each year.

Greater Transparency – A bill introduced in the Senate in December 2009 would require 401(k) plan sponsors to inform participants of their projected monthly retirement income based on the current account balance. This would provide a way for retirees to compare the lump sum in a 401(k) to the expected monthly revenue stream of an annuity, making for an apples-to-apples comparison.

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