Hello could you please help me to understand the difference between GMIB and GMWB under variable annuities? Both are providing fixed income benefit, hence I am confused Thanks in advance
Hi With a Guaranteed Minimum Income Benefit (GMIB): The amount of income taken, often after an accumulation phase, is guaranteed at outset. It might help to think of this as being similar to the proceeds of an endowment purchasing an immediate annuity. The guarantee sets in once the annuity has been annuitised. However, with a Guaranteed Minimum Withdrawal Benefit (GMWB): The guarantees set in before the annuities have been annuitised. The guarantee is on the amount that can be withdrawn (eg 10% of a guaranteed level) and for how long (eg 15 yrs). The guaranteed level may be the initial investment with bonuses added based on fund performance. If there is a fund balance after the guarantee period then this is paid as a death or surrender benefit. It might help to think of this as being similar to an income drawdown plan with guarantees. Does this help? Thanks Em
Thanks for the reply.. So with GMWB, do we have to withdraw compulsory?? or can we just withdraw for two installments after 3 yrs.. eg 30% after 3 yrs instead of takng out 10% each year?? also pls help me to undrstand the impact on withdrawal amounts under GMWB in both the cases: 1. if guaranteed level > fund value 2. if guaranteed level< fund value thanks in advance
Hi If a person aged 50 has bought GMWB, then does his guaranteed benefits start immediately or do they start at retirement age? Or If a person aged 65( Retirement age) buys GMWB, then his guaranteed benefits start immediately? Thanks in advance
This will depend on the jurisdiction but the rules are likely to be around the maximum amount that can be withdrawn. Certain features of variable annuities may not be permissible under personal pension legislation, eg depending on income drawdown rules, withdrawals under a GMWB might not be permissible for some age ranges. Hi It will work just like any other g'tee and fall back to the insurer. The insurer will need to set aside sufficient reserves to ensure it meets the cost of this guarantee. If the g'teed level<fund value then (as the CR says) .... this may be paid as a death or surrender benefit. Thanks Em
Hi Again it will depend on the jurisdiction but there are VAs with GMWBs which allow withdrawals to be made before retirement. Thanks Em
