On April 10, the American Council on Gift Annuities (ACGA) published a report filled with useful data and analysis of the experiences of 378 charities with their gift annuity programs since the start of the Great Recession in 2008.
Gift annuities are a popular method for making a gift to a charity in exchange for fixed, lifetime payments that don’t subject an annuitant to investment volatility. Longevity risk is transferred to the issuing charity, which expects a reasonable financial return for the costs of managing an annuity program, providing stewardship services for existing annuitants and promoting new gifts.
The ACGA survey is like a national report card on collective experiences with gift annuities (individual results will differ as a result of many factors detailed in the report). Based on an extensive survey conducted in October/November 2013, the new 58-page “Report and Comments on the American Council on Gift Annuities 2013 Survey of Gift Annuities” may be downloaded without charge from the ACGA website.
Charities reported on the number and size of gift annuities received; the age and gender of annuitants; assets used to fund annuities; investment performance of annuity reserve accounts; state regulation of gift annuities; and the impact that making a gift annuity has on donors’ likelihood for annual giving and bequests to the charity, among many other questions.
The survey is useful for professional advisors, donors and charities. Unlike other life-income gifts such as charitable remainder trusts and pooled income funds, gift annuity data isn’t collected by the Internal Revenue Service.
Sampling of Findings
Among the 2013 survey’s findings:
- Charities reported issuing 8,266 annuities in their last fiscal year, with a total face value of $262 million.
- More than $3.15 billion in gift annuity funds are under management, usually administered and invested by a bank or other financial institution on behalf of a charity.
- Charities reported a total of 94,821 existing annuity contracts.
- Gift annuities are issued by many kinds of charitable organizations, large and small. Private and public colleges and universities represent the greatest number of survey respondents, followed by religious organizations, hospital/health related organizations, community foundations, social service, environmental and arts organizations.
- For annuities that terminated in the last five years, charities reported that on average the net amount remaining for the charity (residuum) was 64 percent of the initial contribution. This is the lowest average residuum reported in the five surveys conducted since 1994 and resulted from the biggest drop in the stock market since the Great Depression.
- Annuity asset investment performance rebounded: The average annualized return over the last four years was 8 percent.
- The average age of annuitants at the time of their gifts was 75 years, the youngest reported to date. The average age in the 2009 survey was 79, and 78 in 2004.
- Donors who fund one gift annuity are likely to fund another. On average, 44 percent of new annuities in the previous year were from donors who had previously funded an annuity to the charity.
- The typical annuity is issued to one person, rather than a married couple. Seventy percent of the annuities issued in the last year were for one life and 30 percent for two lives.
- Ninety-six percent of charities responding to the 2013 survey reported that they always or usually follow the payment rates suggested by ACGA, similar to previous surveys. Since its founding in 1927, ACGA has devoted considerable time and attention to developing suggested maximum payment rates, which are the primary method for managing financial risks.
- The percentage of deferred payment gift annuity contracts has increased steadily since 1994 (and the share of immediate payment gift annuities has decreased). While representing just 12 percent of all gift annuity contracts, the share of deferred payment annuities has doubled since the 1994 survey.
- In the 2013 survey, 31 percent (106 charities) reported issuing a flexible deferred payment annuity (that is, deferred annuities in which the annuitant can, at some later time, choose the payment starting date), up from 21 percent in 2009, and significantly greater than the 5 percent that issued such an annuity in 1999.
- Thirty-one percent of charities reported that a donor who funds a gift annuity to his organization is likely to increase his annual giving. Sixty-four percent of charities reported that funding a gift annuity is likely to have no effect on a donor’s annual giving to their organization. Only 5 percent of charities reported donors are likely to decrease their annual giving after funding an annuity.
- Fifty-four percent of charities reported that a donor who funds a gift annuity to their organization is likely to make a bequest to his organization, with just 1 percent indicating the donor would likely remove a bequest provision. Forty-five percent of charities reported that funding a gift annuity is likely to have no effect on a donor’s decision to make a bequest.
- Charities continue to launch new gift annuity programs. Nine percent of charities participating in the survey started issuing gift annuities since the year 2009, and 20 percent since the year 2004. At the other end of the experience scale, 29 percent (102 charities) reported issuing annuities for 30 plus years.
The next gift annuity survey will be conducted in the fall of 2017, with results reported at the ACGA Conference in 2018.
