Beginning January 1, 2006, reports Annuity-Investing.com, the state of California new legislation (AB 284) takes effect for minimum guaranteed interest for fixed annuities. Passing this bill is a strong indication that the current low-interest rate environment is having an impact. Annuities are one of the few savings products that offer guaranteed lifetime income, ensuring people won't outlive their assets. Extremely low rates have had negative effects on the ability to accomplish that objective.
The primary goal of the law's revision is providing a means to permit lower interest rate guarantees than the current law allows in low interest rate environments. Legislators agreed on a cap equal to the existing three percent interest rate.
However, Annuity-Investor.com adds, in order to provide some minimum level of guarantee to the consumer, a floor of one percent was also established. Finally, flexibility was provided to the companies by allowing for the re-determination of the minimum interest guarantees on a periodic basis by using the five-year Constant Maturity Treasury Rate, less 125 basis points. AB 284 also significantly reduces the maximum expense loads that may be charged by an insurer by limiting annual contract fees to $50. This bill, however, does not affect any annuity contract now in effect.
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