Deferred variable annuities get a lot of bad press in the popular media. Virtually every financial publication has, at one time or another, run negative articles about deferred VAs.
According to the popular media pundits, deferred VAs are too expensive. Other forms of tax planning are better suited to the average investor than the deferred VA. And so it goes.
Two things are perfectly clear from all of this adverse publicity: The popular press does not really understand deferred variable annuities, and the industry is doing a poor job of educating them.
When Norse started in the VA business nearly 4 decades ago, he sold retirementsnot tax-deferral. In those days, VAs were sold exclusively for the schoolteacher market for "Tax-Sheltered Annuities."
Since these products already had a tax-deferral element, not only relating to investment gains, but also to the premiums paid into the product, their main advantage was the potential advantages of investing in equity instruments coupled with an income that could not be outlived. We illustrated retirement under the various available options and stressed the importance of longevity planning.
This was all for prospects who were, on average, in their 30s and 40s. Certainly, tax planning was an important element in the variable annuity sale. Nevertheless, equal emphasis was given to the importance of longevity planning in the retirement process.
In recent years, sellers of VAs seem to have been concentrating on the tax-deferral elements inherent in the deferred versions of the product. Likewise, many ancillary benefitssuch as bonuses, enhanced minimum death benefits and the likehave been principal points of emphasis in modern product sales.
As a result, little or nothing has been said about the guarantee of income that cannot be outlived.
Given this lack of emphasis on the longevity elements in deferred VAs, it is easy to understand that the media has attempted to measure the value of the product solely from the relative values of the tax-deferral or the other ancillary benefits. Measured solely from this standpoint, many writers have found the product wanting. This has led to the beating the industry constantly takes in the general print and broadcast media.
