Despite the recent onslaught of negative regulatory and media attention to variable annuities, sales of these products have not suffered. In fact, they have continued to grow over the past three years, even as sales of fixed annuities have slipped.
A number of firms have come under fire recently for exceptionally aggressive sales practices with regard to variable annuities. VAs carry commissions as high as 5 percent, often feature extra fees like surrender charges and early withdrawal penalties and are taxed at ordinary income rates when payments are made.
Deb Tucker, vice president of the National Association of Variable Annuities (NAVA), says continued growth in sales of variable annuities has more to do with fluctuations in interests rates and the equity market than anything else.
“During 2001 and 2002, fixed annuities garnered share over variable annuities, because of the concern investors had over any kind of equity-based product,” she says. But in recent years, as the equity market has begun a mild comeback, and as interest rates languished at long-term lows, investors showed more interest in variable than fixed annuities, she says. Tucker expects a real boost in variable annuity sales when the boomer retirement wave hits.