Fixed and variable immediate annuities are available through the Vanguard Lifetime Income Program – SPIA[3], a Single Premium Immediate Annuity (SPIA). The issuer of the annuities acquired through the Vanguard Lifetime Income Program, American General Life Insurance Company of Delaware (or, in New York State only, The United States Life Insurance Company in the City of New York), has taken full responsibility for providing service for these annuities as of November 1, 2010. According to the prospectus:
Fixed income payments are financed by the insurer’s general account and are contingent upon the insurer’s continued solvency. Variable income payments are funded through the Separate Account.
As of June 19, 2019, Vanguard has exited the annuity business. This means the Vanguard Lifetime Income Program – SPIA, a Single Premium Immediate Annuity (SPIA) offering both fixed and variable immediate annuities, is no longer available for purchase.
However, if you already own a Vanguard Lifetime Income Program – SPIA, the terms and conditions of your contract remain in effect. American General Life Insurance Company of Delaware (or, in New York State only, The United States Life Insurance Company in the City of New York) continues to manage and service these existing annuities.
Reasons for Vanguard’s Exit from the Annuity Business
Vanguard’s decision to exit the annuity business was based on several factors:
- Changes in the regulatory environment: The annuity market has become increasingly complex and regulated in recent years. This has led to higher compliance costs for insurance companies, including Vanguard.
- Shifting investor preferences: Investors are increasingly looking for more flexible and transparent investment options. Traditional annuities can be less flexible than other investment products, and their fees can be more opaque.
- Focus on core business: Vanguard’s core business is providing low-cost index funds and ETFs. The company decided to focus its resources on this core business, rather than expanding into the more complex annuity market.
What to Do if You Own a Vanguard Annuity
If you already own a Vanguard Lifetime Income Program – SPIA, you don’t need to take any immediate action. Your annuity contract remains in effect, and American General Life Insurance Company (or The United States Life Insurance Company in the City of New York) will continue to manage and service it.
However, you may want to consider the following:
- Review your contract: Make sure you understand the terms and conditions of your annuity contract, including the payout options and fees.
- Compare your annuity to other investment options: There may be other investment options that are more suitable for your needs, such as a low-cost index fund or ETF.
- Seek professional advice: If you are unsure about what to do with your Vanguard annuity, you may want to seek professional financial advice.
What Happens to Vanguard Annuities in the Future?
While Vanguard is no longer offering new annuity products, American General Life Insurance Company (or The United States Life Insurance Company in the City of New York) will continue to manage and service existing Vanguard Lifetime Income Program – SPIA contracts.
These contracts will continue to operate according to their original terms and conditions. However, there may be some changes in the future, such as:
- Changes to the investment options: The subaccounts available for variable annuities may change over time.
- Changes to the fees: The fees associated with Vanguard annuities may change in the future.
Frequently Asked Questions
What is a Single Premium Immediate Annuity (SPIA)?
A Single Premium Immediate Annuity (SPIA) is an annuity contract that provides a stream of income payments for a set period of time, or for the life of the annuitant. The annuitant makes a single premium payment to purchase the annuity, and then receives regular income payments in return.
What are the different types of Vanguard Lifetime Income Program – SPIA options?
The Vanguard Lifetime Income Program – SPIA offered both fixed and variable immediate annuity options. Fixed options provided a guaranteed level of income payments, while variable options provided income payments that were linked to the performance of a particular investment portfolio.
What happened to the Vanguard Variable Annuity?
The Vanguard Variable Annuity was also discontinued as part of Vanguard’s exit from the annuity business. However, if you already own a Vanguard Variable Annuity, the terms and conditions of your contract remain in effect. Transamerica now manages and services these existing annuities.
What should I do if I have questions about my Vanguard annuity?
If you have questions about your Vanguard annuity, you should contact American General Life Insurance Company (or The United States Life Insurance Company in the City of New York) directly. They can provide you with information about your specific contract and answer any questions you may have.
Vanguard’s exit from the annuity business was a significant event for the company and its clients. However, if you already own a Vanguard annuity, your contract remains in effect and will continue to be managed and serviced by American General Life Insurance Company (or The United States Life Insurance Company in the City of New York).
If you have any questions about your Vanguard annuity, please contact American General Life Insurance Company (or The United States Life Insurance Company in the City of New York) directly.
Annuitization options
The annuitization payout options offered by the Lifetime Income Program SPIA are as follows:
Expense ratios are absent from fixed immediate annuity options; instead, costs are included in the income quote that the insurer provides. The following costs apply to the variable immediate options offered by Lifetime Income Programs:
The following states impose a premium tax on immediate annuities:
| State | Qualifying | Non-Qualifying |
|---|---|---|
| Maine | 0.00% | 2.00% |
| South Dakota | 0.00% | 1.25% |
| Wyoming | 0.00% | 1.00% |
| California | 0.50% | 2.35% |
| Nevada | 0.00% | 3.50% |
| West Virginia | 1.00% | 1.00% |
| Texas | 0.40% | 0.40% |
Assumed investment return (AIR)
The variable options are available with either a 3. 5% AIR or a 5. 0% AIR. For a variable SPIA, the AIR assumes two pivotal valuation functions. It establishes both the initial payment of annuity income and the variable adjustments to income. The higher the initial AIR, the higher the initial payment. With a high AIR, future income growth will be slower and income losses more likely. Less initial income but faster income appreciation are the results of a lower AIR, which offers better inflation risk hedging as well as less income loss during bear markets.