We're selling annuities as a simple product with low costs,'' says Chairman John H. Biggs. One reason insurers charge more is to provide escape hatches for investors fearful of locking up funds forever. Fidelity Investments, the biggest direct seller of annuities, announced Sept. 7 that investors can elect a richer death benefit. Fidelity will guarantee that an annuitant's estate can collect the highest value of the account on any previous anniversary of the account's opening, even if the funds have slumped since. Fidelity also joined a growing list of issuers to eliminate surrender charges.
Insurers use the charges to help cover commissions.
Direct sellers, notably Vanguard Group and T. Rowe Price, led the way on wiping out the charges. Issuers argue that today's fortysomethings, lacking defined-benefit pensions, will crave a guaranteed income source. Annuitization hasn't caught on, largely because investors don't want to surrender control of their money. T. Rowe Price addresses that fear with its new Income Account immediate annuity, which starts paying out at once. The fund lets investors pull out without penalty in the account's first five years.