How Competitive Are Income Annuity Providers Over Time?

Abstract

The 2019 SECURE Act provides safe harbor protections to employers who evaluate the costs of providing guaranteed income including gathering information on competing providers. Annuities can be more difficult to evaluate than mutual funds because annuity expenses can be opaque, financial strength matters, and insurer competitiveness can change over time. We find significant variation in the payout rates across providers over time. While the payout rankings of annuity companies (e.g., best to worst) are fairly sticky over the short-term, over the full period of the analysis the correlation declines effectively to zero (versus the initial rankings). This suggests individuals or institutions who choose a single annuity provider based on income payout should revisit the decision regularly to ensure the quotes are still competitive. Companies for which immediate annuities are a higher fraction of total sales tend to rank higher and remain so more persistently over time.