Annuity Donors Reportedly Getting Younger

July 23, 2014       Mark Hrywna      

Charities received less than two-thirds of the initial contribution to an annuity in the last five years, the lowest average reported in 20 years according to a new survey.

The American Council on Gift Annuities (ACGA) conducts its survey, Survey of Charitable Gift Annuities, every two years. The percentage of initial contributions remaining for charities reached highs of 95 percent and 98 percent in 1994 and 1999, respectively, before dipping to 86 percent in 2004 and 82 percent in 2009.

But the 64 percent reported in 2013 is a record-low residuum for annuities that terminated in the last five years.

“The lower average residuum reported in 2013 is troubling but tempered by the fact that investment results from 2008 to 2013 were strong,” according to the research in the report.

In the last fiscal year, 41 percent of charities reported a return of 5 to 10 percent and 37 percent reported 10- to 20-percent returns on annuity assets. The average return was 9 percent among 232 valid responses. Half of charities reported 10-year returns of 5 to 10 percent and 3 percent reported returns of 10 to 20 percent. The average 10-year return was 8 percent. Returns were “dramatically better” than those reported in the last survey, conducted in 2009.

About 13 percent charities that responded reported they transferred funds to gift annuity accounts during the past four years to meet state minimum requirements, compared with 15 percent that responded in 2009.

A donor who makes a gift annuity is likely to increase annual giving, according to 31 percent of organizations while 64 percent said it’s likely to have no effect. In a survey first, charities were asked whether an annuity is likely to include a bequest and 54 percent said it’s likely compared with 45 percent that said it would have no effect.

The average age of annuitants is trending younger, with the average age at the time of their gifts of 75 years old, younger than the average 79 in 2009, and the youngest on record. Of 5,752 annuitants reported, 57 percent were female compared with 43 percent male.

The share of deferred annuity contracts continues to increase steadily, rising from 6 percent in the 1994 study to 8 percent in 1999 and 2004, 10 percent in 2009 and 12 percent last year. “While representing just 12 percent of all gift annuity contracts, the share of deferred payment annuities has doubled since the 1994 survey,” according to the report.

Nearly a third of the charities surveyed reported issuing a flexible deferred payment annuity, up from 21 percent in 2009 and significantly greater than the 10 percent in 2004 and 5 percent in 1999. Flexible deferred payment annuities are deferred annuities where the annuitant can choose the payment starting data at a later time. Of those that offered deferred annuities, on average, charities have nine flexible deferred annuities in force.

New questions added to the 2013 survey to gauge how the Great Recession affected risk management policies, included asking whether charities expanded their ability to market gift annuities (18 percent) and if they caped the highest payment rate for new annuitants (4 percent).

Among the 378 organizations that responded to the 2013 survey, almost three quarters of respondents were classified as a college or university, religious organization or hospital/health related.