Fewer asset managers see annuities as a must-have in defined contribution retirement plans, according to a new report from Cerulli Associates.
In 2024, roughly 1 in 3 asset managers (37%) believed that retirement plans needed to include annuities as part of their retirement income product offerings, down from 42% who thought so in 2019. Meanwhile, those who are neutral on the need for annuities increased to 25% from 18%.
“While the allure of guaranteed income is understandable — offering retirees a predictable stream of payments — it may not necessarily be an imperative,” Idin Eftekhari, a senior analyst at Cerulli, said in a news release March 20.
One of the biggest drawbacks of annuities is that the products typically do not offer inflation protection, a fact that reduces retirees’ purchasing power over time, according to the report.
“Even in the limited instances when inflation protection is available, it typically comes at a price,” Cerulli said.
On top of a more muted conviction on the need for annuities, asset managers coalesced around the idea that annuities carry a negative stigma. More than 9 in 10 (91%) either agreed or strongly agreed that the products have a negative stigma, up from 79% in 2019.
“Annuities continue to face perception issues due to high fees, complexity, lack of transparency and concerns about insurer insolvency, all of which deter plan participants,” Eftekhari said. “The tradeoff between liquidity and a guaranteed income stream is unappealing for many participants. While annuities provide predictable payments, they do so at the cost of limiting a participant’s access to capital.”
Cerulli suggested that defined contribution plan sponsors offer structured drawdown strategies, such as target-date funds, that provide flexibility while mitigating longevity risk rather than incorporating a strict guaranteed income component.
