Hancock offers 8% withdrawal guarantee on annuities

John Hancock Annuities is making a run for old and young retirees with a new annuity rider.

The Boston-based firm, a unit of Manulife Financial Corp. of Toronto, is offering an 8% guaranteed-withdrawal-benefit rider on its annuities, expecting that the feature will attract older retirees who want income — or need more income — now.

The Principal Returns rider guarantees that the buyer can take out up to 8% a year until at least the amount originally invested in the annuity is gone.

That would translate to about 121/2 years if the investments in the annuity didn’t grow, said Tom Mullen, John Hancock Annuities’ vice president of marketing. The timeline would be longer with investment gains.

Even if the underlying investments lose money, John Hancock Annuities promises to pay out at least the amount the investor initially put in, even after accounting for the rider’s annual fee of between 0.5 and 0.95 percentage points, he said.

If the investments perform well and, for example, a $100,000 annuity swells to $200,000 over time, John Hancock guarantees that it will then pay out the full $200,000 over time, even if the investments later decline in value, Mr. Mullen said.

Younger retirees who want a guaranteed cash flow before they start taking Social Security or tap-ing their corporate pension plans will also like the rider, he said.

“The target here is to extend our core market, [which] has been the 55-to-65-year-old,” Mr. Mullen said.

Other variable annuity providers also offer guaranteed annual withdrawals, but the highest rate other firms offer is 7%, he said.

John Hancock makes investors who opt for the rider participate in one of 12 balanced models or balanced funds, which can comprise up to 80% equities, including funds of funds run by The American Funds, advised by Capital Research and Management Co. of Los Angeles, and Franklin Templeton Investments Inc. of San Mateo, Calif., and John Hancock’s own Lifestyle funds, Mr. Mullen said.

“We have for a long time been big believers in asset allocation,” Mr. Mullen said. “It is not our mission to let retirees gamble with their life savings.”

Another feature of the rider may attract conservative investors who want to invest in the stock market, but with a principal-protection guarantee.

For example, say someone buys a $100,000 annuity and this rider and doesn’t take any withdrawals for the first 10 years. That individual would be given back the 10 years’ worth of rider fees as long as the account value was greater than it had been originally, Mr. Mullen said.

There also is a death benefit that ensures beneficiaries get guaranteed payments or the cash value of the underlying account, he said.

The guaranteed rider joins the firm’s Principal Plus For Life and Income Plus For Life annuities and options that attempt to guarantee benefits to retirees regardless of investment performance, and also allow for asset growth.

Annuities in general are good for a conservative investor, said Rick Bloom, the president of Bloom Asset Management Inc., a Farmington Hills, Mich., firm that manages $850 million in client assets.

He is leery of annuities that make guarantees and promises, saying that there are often penalties and surrender fees that the buyer doesn’t understand. It is important to read the details and investigate what happens to the money upon death, Mr. Bloom said.

“I’m concerned that insurance companies are coming up with things that are gimmicky,” he said.

Investors are giving up control when they own these types of policies, Mr. Bloom said. He isn’t familiar with John Hancock’s latest offering, but he said that he seeks investments that can be terminated and still return a good value to the buyer.

Other financial advisers remain in the anti-annuity camp no matter what options are available to their clients.

“Annuities are a high-cost product that turns low-rate money [capital gains and dividends] into ordinary income, making it ex-tremely tax inefficient,” said Bart Boyer, an adviser with Parsec Financial Management Inc., an Asheville, N.C., firm that manages about $1 billion in client assets.

Though he conceded that annuities “offer a small benefit of tax-deferred returns,” the products often have sales-charge and money-management fees that can cost investors up to 4% a year, Mr. Boyer said. “Much better would be to ‘self-annuitize,’ buying [a Standard & Poor’s 500 stock index] fund and spending 5.8% annually for a return of 11.9% historically over the last 60 years.”

John Hancock Annuities, which sells through advisers, began offering the rider for its annuities Oct. 1.