Introduction to annuities and what they provide

Introduction to annuities and what they provide  

A variable annuity is a long-term investment for retirement that offers:

  • Tax-deferred growth
  • A variety of investment options
  • Guaranteed lifetime income
  • Guaranteed death benefit options

Many investors use variable annuities to complement other tax-deferred retirement investments such as IRA and 401(k) plans since, unlike these investments, the IRS imposes no contribution limits on an annuity. However, the issuer may impose such limits. In addition, many variable annuities allow you and your clients to choose from a broad mix of professionally managed investment options from a variety of fund families.

Annuity and optional rider guarantees are backed by the claims paying ability of the issuing insurer, not Schwab.

Key information related to annuities:

  • Tax-deferred growth potential and the ability to transfer assets tax-free among variable annuity investment options*.  
  • Investment choices in a variable annuity allow you and your clients to allocate annuity assets across subaccounts (investment options) that invest in stocks, bonds, and/or money market instruments.
  • Unlike 401(k)s or IRAs, variable annuities have no IRS contribution limits, so your clients can invest as much and as often as they want. In some instances, annuities allow clients the option to defer taking income until over age 91.
  • Your clients may receive a guaranteed monthly income stream for life by annuitizing their contract or by purchasing an optional living benefit rider, also referred to as a guaranteed lifetime withdrawal benefit (GLWB), in a variable annuity. A GLWB can guarantee and help protect your client's future income from downside risk and is available for an additional cost. Investment requirements and other restrictions and limitations apply.**§
  • Guaranteed death benefit for your clients loved ones. A death benefit is the sum your clients’ beneficiaries will receive when the client passes away, subject to the terms of the contract.§ Certain death benefit options have an additional cost.
  • Schwab does not custody annuities, and they are not visible on Schwab Advisor Center®. Schwab can receive data feeds from Protective Life and Pacific Life, as applicable, where the variable annuity files can be added to your current download into your portfolio management system.
  • Advisors can trade client subaccounts, update future allocations, and print statements through Pacific Life's website or Protective Life's website. Call Schwab Annuity Concierge Services at 888-667-2145 for next steps to access the Protective and Pacific Life sites.

* The issuing insurer may impose a fee on transfers among subaccounts. See the prospectus for details. 
† When your clients invest in an annuity, they do not invest directly in the annuity portfolios. Your clients invest in subaccounts of the life insurance and annuity company that, in turn, invest in the annuity portfolios they've selected. Their account is then credited with variable accumulation units in that subaccount. The fees and charges associated with the subaccount and the terms and conditions of the investment are detailed in the prospectus. Your clients should read the prospectus carefully before investing.
‡ May be subject to insurance company limitations as referenced in the prospectus. Some annuities can be purchased as an individual retirement account and would therefore be subject to IRS limitations.
§ The strength of the guaranteed living benefit or death benefit depends on the claims paying ability of the issuing insurance company. Living benefit and death benefit features may vary among variable annuity contracts.
** A GLWB is not a cash value, surrender value, or death benefit, and is not available as a lump sum withdrawal. A GLWB is not a minimum return for any investment option nor a guarantee of any contract value. All withdrawals reduce the contract value and death benefit.

For information regarding variable annuities and more, refer to the following details:

Fees and penalties

Withdrawals of taxable amounts from a variable annuity are subject to ordinary income tax and, similar to IRAs, 401(k)s, and other qualified plans, the IRS generally imposes a 10% federal income tax penalty for withdrawals before age 59½ to discourage investors from withdrawing assets before retirement.

Some variable annuities also charge front-end commissions and other fees that can impact an investment's growth. The variable annuity offerings available through Schwab do not charge any front-end commissions.

All annuities carry a mortality and expense risk charge to cover insurance and operating expenses in addition to administrative charges (collectively, "M&E&A"). The industry average M&E&A is 1.15% according to an August 13, 2021 Morningstar survey of 3,037 non-group variable annuities as compared to 0.25% (0.45% with Return of Purchase Payments death benefit) for the Schwab Genesis Advisory Variable Annuity™ and 0.45% (0.60% with the Return of Investment death benefit) for the Pacific Advisory Variable Annuity*. This does not include fees associated with the optional guaranteed lifetime withdrawal benefit or underlying investment options.

There are management and operating expenses for the underlying portfolios, known as a fund, subaccount or investment expense/fee. These expenses and fees vary with each portfolio.

Other expenses can include a penalty when your clients withdraw money from their annuity, known as a surrender charge; an annual account fee; and a fee to move among portfolio choices (transfer fee). Not every annuity charges each of these fees. The variable annuities offered through Schwab do not have surrender charges.

Schwab Annuity Concierge Service for Advisors

Schwab Annuity Concierge, a dedicated team of professionals is available to assist you and your clients’ with the annuity sales process and to provide ongoing support. The service simplifies the purchase process and paperwork, so you can focus on growing your business. For more information, see Introduction to Schwab Annuity Concierge Service for Advisors.

Variable Annuity Products Available Through Schwab
Schwab offers a choice of two competitively priced* variable annuities – Pacific AdvisoryVariable Annuity (from Pacific Life) and Schwab Genesis Advisory Variable Annuity™ (from Protective Life) – along with personal guidance to help you choose the one that meets your client's needs. For more information, see Introduction to variable annuity products offered through Schwab.

Annuity Investment Advisor Guidelines

Important guidelines are disclosed for investment managers who use or plan to use variable annuities offered through Schwab in their practice. For more information, see Annuity Investment Advisor Guidelines.

*Base variable annuity fees of 0.25% (0.45% with the Return of Purchase Payments death benefit) for the Schwab Genesis Advisory Variable Annuity and 0.45% (0.60% with the Return of Investment death benefit) for the Pacific Advisory Variable Annuity, as compared to the industry average of 1.15%, according to an August 13, 2021 Morningstar survey of 3,037 non-group variable annuities. This does not include fees associated with the guaranteed lifetime withdrawal benefit or costs associated with the underlying investment options. The Pacific Advisory Variable Annuity fee noted above includes a platform fee as well as M&E&A charges. See prospectus for details.

See some key differences between variable annuities (assumes non-qualified assets) and tax-deferred retirement plans below:

 

Variable annuities

IRA, Roth IRA, Keogh, 401(k)

Contribution free from IRS limits

Yes

No

Investment earnings tax-deferred

Yes

Yes

Pre-tax contribution

No

Maybe

Contribution reduces taxable income

No*

Maybe†

Distribution taxed as regular income

Yes

Maybe

10% federal penalty for distribution of earnings before age 59½

Yes§

Yes§

Defer start of distributions past age
72½

Yes

No**

Guaranteed death benefit

Maybe††

No‡‡

Guaranteed living benefit

Maybe§§

No‡‡

Guarantees subject to the financial strength and claims-paying ability of the issuing insurance company, not Schwab.

* Contributions reduce taxable income if the variable annuities were purchased in a qualified retirement plan, such as a 401(k), or an IRA. The decision to purchase an annuity within a qualified plan or IRA should not be based on the annuity’s tax deferred accrual feature as this is already provided by the qualified plan or IRA itself.
† A regular IRA reduces taxable income only within certain income guidelines and under certain circumstances. A Roth IRA does not reduce taxable income.
‡ Roth IRA earnings are tax-free if the distributions meet certain requirements.
§ Subject to certain exceptions.
** Roth IRA owners may defer start of distributions past age 72 as Roth IRAs are funded with after-tax money and not subject to Required Minimum Distributions.
†† The strength of the guaranteed death benefit depends on the claims paying ability of the issuing insurance company. Death Benefit features may vary among variable annuity contracts. Optional death benefits including a guaranteed minimum (return-of-purchase payments) death benefit and Stepped-Up death benefit carry an additional annual charge.
‡‡ Assumes the IRA, Roth IRA, Keogh, or 401(k) is not funded with a variable annuity contract.
§§ Guaranteed living benefits are optional, available for an additional cost and subject to restrictions and limitations.

I already use annuities in my business. How can my clients benefit from the annuity products available through Schwab?Your clients may benefit from the competitive price and flexibility of the variable annuity products available through Schwab.* In addition, the vast fund line-up and variety of income and death benefit protection options offered with variable annuities available through Schwab can provide tremendous value. For example, clients can choose from:

  • Over 100 different investment options, including the Schwab S&P 500 Index Portfolio at a cost of only 0.03%, in the Schwab Genesis Advisory Variable Annuity™ or the Pacific Advisory Variable Annuity
  • Guaranteed lifetime withdrawal benefit (GLWB) riders designed to provide an income guarantee. Depending upon the annuity and rider selected, the GLWB may offer the opportunity for annual increases that may include an interest credit to the benefit base (the amount on which guaranteed withdrawals are based) annually for up to ten years or stepped-up when a new high anniversary value is reached due to positive market performance
  • Standard account value death benefit or optional protection through either a Return of Purchase Payments Death Benefit§ (available with Schwab Genesis Advisory Variable Annuity) or Return of Investment Death Benefit§ (available with Pacific Advisory Variable Annuity)
  • Advisory fees (up to 1.50% of account value per calendar year) taken from the Pacific Advisory Variable Annuity do not reduce client benefits, such as optional GLWB or death benefits. Refer to the prospectus for more information

* Base variable annuity fees of 0.25% (0.45% with the Return of Purchase Payments Death Benefit) for the Schwab Genesis Advisory Variable Annuity and 0.45% (0.60% with the Return of Investment death benefit) for the Pacific Advisory Variable Annuity, as compared to the industry average of 1.15%, according to an August 13, 2021 Morningstar survey of 3,037 non-group variable annuities. This does not include fees associated with the guaranteed lifetime withdrawal benefit or underlying investment options. The Pacific Advisory Variable Annuity fee noted above includes a platform fee as well as M&E&A charges. See prospectus for details.

† Please note that the GLWB does not guarantee investment performance, is not a contract value and is not available for withdrawal like a cash value. Actual contract value and death benefit will decrease with each withdrawal. GLWB riders are available for an additional cost and subject to restrictions and limitations. GLWB rider availability and features vary among variable annuity contracts.

§ Optional death benefit available for an additional cost. Availability and features vary among variable annuity contracts.

I don't currently include annuities in my practice. Why should I add annuities as a product available to my clients?Providing annuities to your clients could expand the services you offer. Clients that do not have an annuity may benefit from variable annuity products offered through Schwab that provide:

  • Tax-deferred growth potential
  • A variety of investment options
  • Guaranteed lifetime income
  • Guaranteed death benefit options

Also, many of your clients may have purchased annuities elsewhere that may no longer be meeting their needs. These clients might benefit by transferring** to an annuity available through Schwab which offers flexibility and competitive pricing.*

* Base variable annuity fees of 0.25% (0.45% with the Return of Purchase Payments Death Benefit) for the Schwab Genesis Advisory Variable Annuity and 0.45% (0.60% with the Return of Investment death benefit) for the Pacific Advisory Variable Annuity, as compared to the industry average of 1.15%, according to an August 13, 2021 Morningstar survey of 3,037 non-group variable annuities. This does not include fees associated with the guaranteed lifetime withdrawal benefit or underlying investment options. The Pacific Advisory Variable Annuity fee noted above includes a platform fee as well as M&E&A charges. See prospectus for details.

In the past, I managed annuity assets at a full-commission firm. I now work for a Registered Investment Advisor. Could my clients transfer these annuity assets to Schwab, where I could manage these assets?Schwab does not custody annuities. Schwab offers a choice of two highly competitive variable annuities, on its advisor platform: Schwab Genesis Advisory Variable Annuity™ (through Protective Life) and Pacific Advisory Variable Annuity (through Pacific Life).  You may have clients who already have annuities that are near the end or past the surrender period, but which may no longer be meeting their needs. These clients may benefit by transferring** their annuity assets to one of the annuity products available through Schwab, which offer flexibility at competitive prices.

** When considering the exchange of an existing annuity, consider surrender charges on the current contract; the potential loss of guaranteed benefits; and differences in features, costs, services, and company strength as well as factors that could reduce or eliminate the benefit of the exchange.

I'm not a licensed insurance agent. How can I use the Schwab annuity products in my practice?Regardless of whether you currently hold an insurance license, our process is the same. Simply refer your clients to the licensed representatives at Schwab Annuity Concierge Service for Advisors, who will handle the actual sale. Schwab's Annuity Concierge will answer questions, determine suitability and manage the process for obtaining the necessary forms, including an annuity limited power of attorney agreement, and the annuity application. Once the policy is funded and in force, you may submit a client's instructions that allocate the investment among subaccounts.

Are the portfolios within the variable annuities that are available through Schwab the same as the public funds available outside the annuity?No. The portfolios available through annuity products are not the same funds available outside the annuity, and performance will differ. However, many of the Schwab variable annuity portfolios are modeled after public funds, so the portfolios may have the same portfolio manager and the same investment strategy, and generally invest in substantially similar securities as the public mutual fund. Given the significant potential for varying performance, however, you should not state or imply to your clients that these portfolios are the same as their retail mutual fund equivalents.

Are all of the portfolios in the Schwab annuity products modeled after public funds?No. Not all the fund companies offer variable annuity portfolios modeled on their public funds.

Why is the performance of the annuity portfolios not identical to that of the public funds?Each variable annuity portfolio and public mutual fund are separate and distinct, with different security holdings, different fees and expenses, and different amounts of assets. As a result, performance will vary.

Introduction to variable annuity products offered through Schwab
Introduction to Schwab Annuity Concierge Service for Advisors

To contact a Schwab Annuity Concierge licensed annuity specialist, call 888-667-2145 (option 2) from 7 a.m. to 4 p.m. PT, Monday–Friday or email annuityconcierge@schwab.com.

Variable annuities are registered products that are sold by prospectus only. Prospectuses can be obtained by calling 888-667-2145 (option 2). Before purchasing, your clients should carefully read the prospectus and consider the annuity's investment objectives and all risks, charges, and expenses associated with the annuity and its investment options.

Guarantees are subject to the terms and conditions of the contract and the claims-paying ability of the issuing insurer and do not apply to the separate account or the underlying investment options available with this contract. Schwab does not provide any insurance guarantees.


Variable annuities are long-term investments intended for retirement planning and involve market risk and the possible loss of principal. Any withdrawals prior to 59½ may be subject to income tax and a 10% federal tax penalty. Variable annuities are subject to a number of fees, including mortality and risk expense charges, administrative fees, premium taxes, investment management fees, and charges for additional optional features. Although there are no surrender charges on the variable annuities offered by Schwab, such charges do apply in the early years of many contracts.

Because a variable annuity's value will fluctuate depending on the performance of the underlying portfolios, an investor's units, when redeemed, may be more or less than the original amount invested.

When transferring an annuity, consider surrender charges that may apply upon terminating an existing annuity contract, loss of guaranteed benefits, and differences in features, costs, services, and company strength, as well as other factors that could reduce or eliminate the benefit of an exchange.

Annuities may be subject to insurance company limitations, including limits on purchase payment amounts that will be accepted, as referenced in the prospectus. Some annuities can be purchased as an individual retirement account and are therefore subject to IRS limitations.

The decision to purchase an annuity in a qualified plan or IRA should not be based on the annuity's tax-deferred accrual feature as this is already provided by the qualified plan or IRA itself.

Section 1035 of the Internal Revenue Service code allows for the tax-free exchange of one annuity contract for another. Before initiating exchange of an existing annuity, there are a number of important factors to consider which could reduce or eliminate the benefit of the exchange. These include surrender charges on the existing contract, loss of guaranteed benefits, and differences in features, costs, services, and company strength. Consider surrender charges that may apply upon terminating an annuity contract. These charges may reduce or eliminate the benefits of a transfer.

When your clients invest in an annuity, they do not invest directly in the annuity portfolios. Your clients invest in subaccounts of the life insurance company that, in turn, invest in the portfolios they've selected. Their account is then credited with variable accumulation units in that subaccount. The fees and charges associated with the subaccounts and the terms and conditions of the investment are detailed in the prospectus for the annuity. Your clients should read the prospectus carefully before investing.

Fixed interest choices offer a fixed rate of return if held to maturity. If surrendered early, the original fixed account value may increase or decrease depending upon whether any fees or penalties apply.

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

Protective and Protective Life refer to Protective Life Insurance Company (PLICO) and its affiliates, including Protective Life & Annuity Insurance Company (PLAIC). Protective Life does not offer or provide investment, fiduciary, financial, legal or tax advice or act in a fiduciary capacity for any client. Please consult with your investment advisory attorney or tax advisory as needed. Variable annuities are long-term investments intended for retirement planning and involve market risk and the possible loss of principal. Any withdrawals prior to 59½ may be subject to income tax and a 10% federal tax penalty. Investments in variable annuities are subject to fees and charges from the insurance company and the investment managers.

Protective Life variable annuities are issued by PLICO in all states except New York where they are issued by PLAIC. Securities offered by Investment Distributors, Inc. (IDI) the principal underwriter for registered products issued by PLICO and PLAIC, its affiliates. PLICO is located in Nashville, TN; PLAIC and IDI are located in Birmingham, Alabama. Each company is solely responsible for the financial obligations accruing under the products it issues. Product guarantees are backed by the financial strength and claims-paying ability of the issuing company.

Schwab Genesis Advisory is a flexible premium deferred variable and fixed annuity contract issued under policy form series VDA-P-2006 (PLICO) and VDA-A-2006 (PLAIC). SecurePay Life benefits provided by rider form number VDA-P-6057 (PLICO) and VDA-A-6059 (PLAIC). Policy form numbers, product availability, and product features may vary by state. (WEB.2277634.03.21)

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues. Insurance product and guarantees, including optional benefits and any fixed subaccount crediting rates or annuity payout rates, are backed by the financial strength and claims-paying ability of the issuing insurance company and do not protect the value of the variable investment options. They are not backed by the broker/dealer from which this annuity is purchased, the insurance agency from which this annuity is purchased, or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

Pacific Life variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA), and an affiliate of Pacific Life & Annuity Company, and are available through licensed third parties.

Pacific Odyssey Variable Annuity Contract Form Series: 10-17800, 10-178OR (state variations may apply). Rider Series: ICC19:20-1427, ICC19:20-1428 (state variations may apply).

Pacific Advisory Variable Annuity Contract Form Series: ICC20:10-1040 (state variations may apply). Rider Series: ICC20:20-1040 (state variations may apply).

Charles Schwab & Co., Inc. is the selling broker-dealer and insurance agency and is not affiliated with either Protective Life Insurance Company (PLICO) and its affiliates or Pacific Life and its affiliates. All individuals selling this product must be licensed insurance agents and registered representatives.

Charles Schwab & Co., Inc. is a licensed insurance agency and distributes annuity contracts and other insurance products that are issued by leading insurance companies that are not affiliated with Schwab. Not all products are available in all states.

(1021-1G2Y)