The F&G Accelerator Plus annuity is identical for both policy tenures, except for the earnings rate and surrender charge schedule. For ease of discussion and better clarity, we will discuss the F&G Accelerator Plus 10 annuity for the rest of the article.
Any annuitant (maximum age at the time of policy issue: 85) can purchase the F&G Accelerator Plus 10 annuity with a minimum initial purchase amount of $10,000; and in return, he will earn market index returns (calculated through a formula that we will discuss shortly), credited as per the chosen crediting period. Apart from the regular crediting period, there are various events that may trigger earnings credit: On free withdrawals; For a long-term care event or terminal illness or injury event; or when a death benefit is payable.
The F&G Accelerator Plus 10 annuity offers the annuitant to chose from one or more of the three indexes to determine his earnings crediting formula. They are the S&P 500, Barclays Trailblazer Sectors 5 Index, and CBIC Balanced Asset 5 Index. The S&P 500 offers the annuitant an option to chose from four crediting strategies, two from Barclays Trailblazer Sectors 5 Index, and two from the CBIC Balanced Asset 5 Index (making it a total of 8 strategies). Besides this, it also provides an option to choose from a fixed interest rate of 1% (it’s too low). We will discuss each available index briefly:
S&P 500 Index
The S&P 500 index is one of the most popular and oldest indexes in the world. It tracks 500 large-cap publicly traded stocks listed in the United States. It is a reliable index and has often succeeded in the test of time.
It is very important to note that the F&G Accelerator Plus annuity offers a low participation rate for the S&P 500 index, meaning that you will be credited only a small part of the S&P 500 return to your annuity. These rates tend to change frequently; I will discuss more on the rates shortly.
Barclays Trailblazer Sectors 5 Index
Trailblazer aims to track a diversified portfolio of assets with the highest return potential for a given level of risk.Trailblazer utilizes 14 ETFs that provide diversified exposure to the stock and bond markets, plus a cash component. The ETFs are the growth engines of the portfolio and provide the potential for earning returns. However, since stocks and bonds carry risks, so do the ETFs.
The Barclays Trailblazer Sectors 5 Index was created in July 2016 and targets a 5% annualized realized volatility. The 5 years historical annual return from 2016-2021 as shown by Barclays stands at 3.62%.
CIBC Balanced Asset 5 Index
The Balanced Asset 5 Index takes a classic approach to its portfolio construction with a 60/40 allocation. Combined with rebalancing and volatility control features, the index seeks to provide excess returns across market conditions through a tactical combination of equity and fixed income ETFs.
The CIBC Balanced Asset 5 Index was created in June 2020 and targets a 5% annualized realized volatility. The hypothetical back-tested historical annual return from 2003-2020 as shown by CIBC stands at ~4.00%.
In my opinion, the CIBC Balanced Asset 5 Index is an ideal index to choose from, as it offers a very high participation rate, and back-tested volatility is also low compared to other indexes.
Note: In addition to allocating the funds in the following indexes, the annuitant also has an option to allocate funds at a fixed interest. These Fixed Rates tend to change from time to time. The Fixed Value Rate at the time of writing this article was 1%.
The earnings crediting formula
The earnings crediting formula is the most important part of this annuity discussion. It is important to know that we don’t simply get the index return credited to our annuity. There are a few rates and caps that the company has in place that affect our earnings. These rates tend to change over time, and the updated rates can always be checked with the help of your advisor.
The F&G uses four crediting strategies:
Point to point with Participation Rate
Participation rate describes the annuitant’s participation percentage in a return of an index. For example, suppose the participation rate is 60%, and the index returned 10% over the agreed time. In that case, the annuitant will be eligible for only 60% of the return, i.e., 6%. The formula for the same is (Participation Rate % X Index Return).
Point to point with Cap
Cap rate is the most important terminology in an FIA. It means at what rate your interest-earning capacity is capped. For example, if an index returned 13% but your contract’s cap rate is 7%. In this situation, You will be eligible for an interest credit of 7% only. It doesn’t matter how much the index goes above the cap rate; the maximum interest you can earn is the cap rate.
Point to point with Spread
Spread is the percentage of the index return that the insurance company will deduct from your interest calculation. For example, if the spread in the contract is 2% and the index returned 8%, you will be eligible for the return minus the spread (8% – 2%), i.e., 6% of the return.
Annual Declared Rate on Gain
If the change in the index value is zero or negative, no indexed interest is added. If the change in the value of the index during that 1-year period is positive, the declared index gain interest rate is multiplied by the option’s account value to determine the index interest credits. The index interest credits pursuant to this option will never be less than zero.
Now, these strategies can be mixed and matched with different indexes, tenures, and Performance Rate Rider. For example, you can select the S&P 500 Index with a 1-year annual point-to-point with Participation rate, or the same with a 1-year monthly point-to-point with Cap or 1-year declared rate on gain, and so on.
Performance Enhancement by paying charge: The F&G Accelerator Plus annuity has a Performance Enhancement rider through which you can opt to increase the Participation Rates, Cap Rates, Declared Rates, and/or reduce the spreads.
Let’s have a look at the rate chart of the F&G Accelerator Plus annuity to better understand the earnings crediting strategies. Note that these rates are updated as of July 2021. These rates tend to change. Contact your investment advisor to know the latest rates of the F&G Accelerator Plus annuity.
The F&G Accelerator Plus annuity is identical for both policy tenures, except for the earnings rate and surrender charge schedule. For ease of discussion and better clarity, we will discuss the F&G Accelerator Plus 10 annuity for the rest of the article.
Any annuitant (maximum age at the time of policy issue: 85) can purchase the F&G Accelerator Plus 10 annuity with a minimum initial purchase amount of $10,000; and in return, he will earn market index returns (calculated through a formula that we will discuss shortly), credited as per the chosen crediting period. Apart from the regular crediting period, there are various events that may trigger earnings credit: On free withdrawals; For a long-term care event or terminal illness or injury event; or when a death benefit is payable.
The F&G Accelerator Plus 10 annuity offers the annuitant to chose from one or more of the three indexes to determine his earnings crediting formula. They are the S&P 500, Barclays Trailblazer Sectors 5 Index, and CBIC Balanced Asset 5 Index. The S&P 500 offers the annuitant an option to chose from four crediting strategies, two from Barclays Trailblazer Sectors 5 Index, and two from the CBIC Balanced Asset 5 Index (making it a total of 8 strategies). Besides this, it also provides an option to choose from a fixed interest rate of 1% (it’s too low). We will discuss each available index briefly:
S&P 500 Index
The S&P 500 index is one of the most popular and oldest indexes in the world. It tracks 500 large-cap publicly traded stocks listed in the United States. It is a reliable index and has often succeeded in the test of time.
It is very important to note that the F&G Accelerator Plus annuity offers a low participation rate for the S&P 500 index, meaning that you will be credited only a small part of the S&P 500 return to your annuity. These rates tend to change frequently; I will discuss more on the rates shortly.
Barclays Trailblazer Sectors 5 Index
Trailblazer aims to track a diversified portfolio of assets with the highest return potential for a given level of risk.Trailblazer utilizes 14 ETFs that provide diversified exposure to the stock and bond markets, plus a cash component. The ETFs are the growth engines of the portfolio and provide the potential for earning returns. However, since stocks and bonds carry risks, so do the ETFs.
The Barclays Trailblazer Sectors 5 Index was created in July 2016 and targets a 5% annualized realized volatility. The 5 years historical annual return from 2016-2021 as shown by Barclays stands at 3.62%.
CIBC Balanced Asset 5 Index
The Balanced Asset 5 Index takes a classic approach to its portfolio construction with a 60/40 allocation. Combined with rebalancing and volatility control features, the index seeks to provide excess returns across market conditions through a tactical combination of equity and fixed income ETFs.
The CIBC Balanced Asset 5 Index was created in June 2020 and targets a 5% annualized realized volatility. The hypothetical back-tested historical annual return from 2003-2020 as shown by CIBC stands at ~4.00%.
In my opinion, the CIBC Balanced Asset 5 Index is an ideal index to choose from, as it offers a very high participation rate, and back-tested volatility is also low compared to other indexes.
Note: In addition to allocating the funds in the following indexes, the annuitant also has an option to allocate funds at a fixed interest. These Fixed Rates tend to change from time to time. The Fixed Value Rate at the time of writing this article was 1%.
The earnings crediting formula
The earnings crediting formula is the most important part of this annuity discussion. It is important to know that we don’t simply get the index return credited to our annuity. There are a few rates and caps that the company has in place that affect our earnings. These rates tend to change over time, and the updated rates can always be checked with the help of your advisor.
The F&G uses four crediting strategies:
Point to point with Participation Rate
Participation rate describes the annuitant’s participation percentage in a return of an index. For example, suppose the participation rate is 60%, and the index returned 10% over the agreed time. In that case, the annuitant will be eligible for only 60% of the return, i.e., 6%. The formula for the same is (Participation Rate % X Index Return).
Point to point with Cap
Cap rate is the most important terminology in an FIA. It means at what rate your interest-earning capacity is capped. For example, if an index returned 13% but your contract’s cap rate is 7%. In this situation, You will be eligible for an interest credit of 7% only. It doesn’t matter how much the index goes above the cap rate; the maximum interest you can earn is the cap rate.
Point to point with Spread
Spread is the percentage of the index return that the insurance company will deduct from your interest calculation. For example, if the spread in the contract is 2% and the index returned 8%, you will be eligible for the return minus the spread (8% – 2%), i.e., 6% of the return.
Annual Declared Rate on Gain
If the change in the index value is zero or negative, no indexed interest is added. If the change in the value of the index during that 1-year period is positive, the declared index gain interest rate is multiplied by the option’s account value to determine the index interest credits. The index interest credits pursuant to this option will never be less than zero.
Now, these strategies can be mixed and matched with different indexes, tenures, and Performance Rate Rider. For example, you can select the S&P 500 Index with a 1-year annual point-to-point with Participation rate, or the same with a 1-year monthly point-to-point with Cap or 1-year declared rate on gain, and so on.
Performance Enhancement by paying charge: The F&G Accelerator Plus annuity has a Performance Enhancement rider through which you can opt to increase the Participation Rates, Cap Rates, Declared Rates, and/or reduce the spreads.
Let’s have a look at the rate chart of the F&G Accelerator Plus annuity to better understand the earnings crediting strategies. Note that these rates are updated as of July 2021. These rates tend to change. Contact your investment advisor to know the latest rates of the F&G Accelerator Plus annuity.
