Today’s review is on the PENN Mutual Smart Foundation Variable Annuity. The purpose of this review is to show you the strengths and weaknesses of this Annuity. In order to make an informed decision, it is important to consider all available facts.
- Product type
- Investment options that are available and their realistic long-term investment return expectations
- How it can best help your financial plan
- How it’s most poorly used as part of your financial plan
PENN Mutual Smart Foundation Variable Annuity Quick Facts
|Product Name||Smart Foundation Variable Annuity|
|Issuer||PENN Mutual Life Insurance Company|
|Type of Product||Variable Annuity|
|Standard & Poor’s Rating||“AA-” (Good)|
Before we go into detail, here is an important legal disclosure.
This review of PENN Mutual Smart Foundation Variable Annuity is an independent review at the request of readers. Intended to explain my perspective when breaking down the positives and negatives of this particular model annuity. This is an independent product review, not a recommendation to buy or sell an annuity. Equitable has not endorsed this review in any way, nor do I receive any compensation for this review. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional, should you have specific questions related to your circumstances. This review is not intended to give specific advice and your adviser may know more about your circumstances to make an appropriate recommendation. All names, marks, and materials used for this review are property of their respective owners.
Before we go into the review, some information on PENN
The Penn Mutual Life Insurance Company, commonly referred to as Penn Mutual, was founded in Philadelphia, Pennsylvania, in 1847. It was the seventh mutual life insurance company chartered in the United States. As of 2019, it had 3,140 employees, $3.7 billion in revenue, and $36.7 billion in assets.
There are a few ways that Agents might pitch PENN Mutual Smart Foundation Variable Annuity
- 8% Guaranteed Returns
- Purchase Enhancement (purchase bonus)
- Principal protection
Is any of this True?
PENN Mutual Smart Foundation offers some of those benefits, however, it does not offer them without a cost. Unfortunately, those costs are not near low as they make you believe, and most of the time the fees in this annuity eats that 8% guarantee that they promise. Also, it is important that the guaranteed growth and income percentage is simple not compounded, plus it comes with an extra rider charge.
The purchase Enhancement rate (bonus) looks good in paper but the only way to get is to choose the contract with the highest fees plus it is only valid if you keep contributing to your annuities in the accumulation phase. This benefit varies between 4-6% depending on your purchase amount, later on this article you are going to see the details of this benefit broken down.
Fees for PENN Mutual Smart Foundation Variable Annuity:
Surrender Value Charges
The Free Withdrawal amount for this Annuity is 5% per year.
|Smart Foundation Prime||8%||7%||6%||5%||4%||3%||1.5%||0%||0%|
|Smart Foundation Flex||8%||7%||6%||5%||0%||0%||0%||0%||0%|
|Smart Foundation Plus||8%||8%||8%||7%||6%||5%||4%||3%||2%|
PENN Mutual Smart Foundation Fee Breakdown:
|Type||Smart Foundation Prime||Smart Foundation Flex||Smart Foundation Plus|
|Account Fee (waived over 50k)||$40||$40||$40|
|Mortality & Expense Charge and Administration Charge||1.25%||1.50%||1.45%|
|Fund Expense Fee||0.36% –1.86%||0.36% –1.86%||0.36% –1.86%|
|Guaranteed Growth and Income Benefit Rider||Current: 1.05% Max Fee: 2.00%||Current: 1.05% Max Fee: 2.00%||Current: 1.05% Max Fee: 2.00%|
|Enhanced Death Benefit Charge Rider||Current: 0.35% Max: 0.75% Combination with the GGIB: 0.20%||Current: 0.35% Max: 0.75% Combination with the GGIB: 0.20%||Current: 0.35% Max: 0.75% Combination with the GGIB: 0.20%|
|Guaranteed Minimum Accumulation Benefit Rider||Current: 0.60% Max: 1.00%||Current: 0.60% Max: 1.00%||Current: 0.60% Max: 1.00%|
|Aprox. Current Fees||4.25%||4.35%||4.3%|
The approx. Fees shown above is an example of what would happen if you buy all the riders that come with this annuity, which in most of the cases the agent/advisor will encourage you to buy. It is important for you to check every fees involve with your annuity because it will take out from your returns every year, and in many occasions people think they are only paying 1.00% in management fees but in reality they are paying much more than that when you add all the other fees that the sales agents omit when recommending you the annuity.
How does A Smart Foundation Variable Annuity Work?
The way is this annuity works is different that other variable annuities. It offers you 3 Types of contract that you can choose from. Below I explained the different of these contracts.
Smart Foundation Prime:
This is the standard option of your Base Contract and offers you the choice for a seven-year Surrender Charge Period and the lowest Mortality and Expense Risk Charge of the three options.
Smart Foundation Flex:
This contract is designed for consumers nearing retirement who may need their income soon because it offers you a short surrender charge period base contract option.
Smart Foundation Plus
The differences between the Smart Foundation Plus and the other two are basically the options it gives you which in paper look more appealing. It also gives you a nine-year surrender charge period which is determined on each purchase payment. Among the features it gives you there is the Purchase Payment Enhancement, but it also comes with an increase on the M&E Risk Charge.
Later on this review we are going to break down the fees for all this options, but right now I’d like to what this feature will offer you and if it is worth it or not to choose this contract option.
Purchase Payment Enhancements
With The Purchase Payment Enhancement, every time you make a purchase PENN Mutual will credit your account value with an additional amount, this amount depends on the purchase amount below you can see the rate table for this credit.
PURCHASE PAYMENT ENHANCEMENT RATE TABLE
|Cumulative Net Purchase Payments (Cumulative Total of Purchase Payments Less Withdrawals)||Purchase Payment|
|>= $150,000 but < $1,000,000||5.0%|
This feature does not charge you an additional fee, it comes with the Smart Foundation Plus Contract, and the way they accredit this amount is from its surplus which reflects revenues from multiple sources, including the administrative, mortality and expense risk, and deferred sales charges made under the Contract.
The way the Purchase Payment Enhancement Rate is calculated is based on the Cumulative Net Purchase Payments, which is the Cumulative total of Purchase received minus the total withdrawals.
After reviewing the Smart Foundation Plus, you can say that it looks appealing because it gives you the Enhancement credit feature “free of fee” but is it really free? Well actually it is not, because in order to have this feature you need to select the contract with the most expensive fees, and after we add all the fees together that credit with pay for itself by with all the high fees they charge you. Also the way they give you the credits is when you make a purchase (contribute) on the annuity, so if you don’t plan to contribute more on this annuity this credit will not be really useful for you.
Smart Foundation Variable Annuity Riders
Guaranteed Growth and Income Benefit Rider
This rider can only be purchased on the beginning of the contract and can be in combination with the Enhanced Death Benefit for it to lower the total fees. What this Rider allows you to do is to have, as they call it, a “Guaranteed growth” they promise the guaranteed is around 5-8%, but is this true at all? Well what they area not telling you is that this income rider comes with a high fee, and after adding the other fees we stated above the total growth is not near that 8% they promise you, it is more like a 2-3.5% growth simple growth, which means you wont make interest on the interest made. So, basically what this income rider will allow you to do is to keep up and may be beat inflation every year. The only way it might give you better returns is with if you select the Smart Foundation Plus contract because it will give you the credit every time you contribute to your annuity, but as I mentioned before if you don’t plan to contribute every year to your annuity, this rider as well as that contract choice don’t make sense at all.
Guaranteed Minimum Accumulation Benefit
What this Rider basically allows you to do is, in case at the end of Contract Value is less than the Guaranteed Minimum Accumulation Benefit, the Contract Value will be increased to equal the Guaranteed Minimum Accumulation Benefit Base. Also, this Rider provides the option to periodically lock in market gains and extend the Benefit Period.
Remember that all withdrawals that you do are going to reduce the guarantees for these riders.
This Annuity works Best:
- For those who like paying high fees
- Purchase Bonus Credit.
- Tax-deferred growth.
This Annuity Works Worst:
- Low Fees
- Those who need liquidity.
- For those looking for a lifetime income.
- Principal Protection
This Annuity has more bad features than good ones. The high guarantees that supposedly gives you are nowhere near as they tell you when you add all the fees together. However, if you have this annuity and you purchased the Plus contract you have the opportunity to may be overcome those fees by contributing each year to this annuity.
As I have mentioned in other reviews, you have to be careful when you buy a variable annuity because they usually come with high fees that agents tent to hide from you. That’s why it is important before buying an annuity doing your research and potentially contacting a fiduciary advisor that puts your interest before his own.
Before creating a Financial Income Plan it is important to run all your numbers, so you have a better understanding of how your money can perform in different scenarios and potentially give you that retirement lifestyle that you desire. For this we encourage you to contact a Certifiead Financial Planner that has the experience creating financial plans.