Press Responses
August 5, 1999
Letters to the EditorThe Washington Post
1150 15th Street, NW
Washington, DC 20071 Dear Editor: We strongly object to Jane Bryant Quinn's article, "Variable Annuities: Proceed with Caution," which appeared in the July 25, 1999 edition of The Washington Post. Ms. Quinn's unsubstantiated assertion that "there's a lot of deceptive or inappropriate selling going on" is not only inaccurate, but manifestly unfair to the investment professionals who sell variable annuities. Variable annuities are complex products, and the guidance and advice offered by knowledgeable professionals provide invaluable assistance to people planning for retirement. Ms. Quinn is apparently unaware of a recent survey conducted by the Gallup Organization. Eighty-four percent of annuity owners feel they have saved more money with an annuity than they would have if the annuity had not been available. An even higher percentage, 89% of those surveyed, agree that annuities are an effective way of saving for retirement. This is a track record any industry would be proud of. The article disparages the use of variable annuities in qualified plans. Ms. Quinn asks, "why pay for this [tax deferral] advantage twice?" This argument completely misses the point. The modest cost differential between variable annuities and mutual funds (65 basis points in 1997, based on data from Lipper Analytical Services) is not to pay for tax deferral, it is for the annuity's insurance benefits and guarantees. These include beneficiary protection in the form of a death benefit and income payments that are guaranteed to last for the rest of your life, no matter how long you live. The article also questions the sale of variable annuities to older investors because "you have to hold a variable annuity for 12 to 20 years or more before your gains from tax deferral outweigh the higher taxes and expenses you have to pay." This assertion is not supported by a 1999 study prepared by PricewaterhouseCoopers, which compared the after-tax performance of variable annuities and mutual funds. The study reports that for the average of all types of variable annuity and mutual fund investments and under a range of payout options, the longest break-even holding period is less than 5.3 years. This figure is substantially less than the 12 to 20 years claimed in the article. Thus, contrary to what Ms. Quinn believes, variable annuities can be appropriate investments for older investors, depending on their circumstances. With people living longer and longer, even older investors can benefit from the tax deferral and insurance features of the product. No product is perfect for everyone, and investors should carefully consider where to invest based on their individual needs and circumstances. Investors should identify their financial goals, time horizon and what features are important to them. For example, an older investor desiring maximum flexibility might select a variable annuity with no surrender charge. Thoughtful consideration of all relevant factors has led millions of Americans to choose variable annuities for their retirement planning. Sincerely,
Mark J. Mackey
President and CEO
National Assn. for Variable Annuities (NAVA)
Reston, VA cc: Jane Bryant Quinn
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Phone: 703-707-8830 · Fax: 703-707-8831