CAI Home > Resources > The History of Annuities in the United States
Section 7
CONCLUSION AND FUTURE PROSPECTS
Annuities were a small share of the U.S. insurance market until
the 1930s, when two developments contributed to their growth.
Flexible-payment deferred annuities, which include a saving component
as well as an insurance component, expanded rapidly as concerns
about the stability of the financial system drove investors to
products offered by long-standing and reputable insurance companies.
In addition, the group annuity market for corporate pension plans
began to develop in the 1930s; it became the largest part of
the U.S. annuity market in the years following World War II.
The market for individual annuities expanded in the 1970s and
early 1980s. The most recent development in the annuity marketplace
was the expansion of variable annuities in the late 1980s and
early 1990s. These products, which combine the investment features
of many mutual funds with certain insurance elements and which
qualify for the tax deferral accorded to investment income on
life insurance products, have attracted a substantial and growing
volume of premiums in recent years.
The Gallup (1996) survey data show that more than three-quarters
of nonqualified annuity owners are at least 55 years old. Growing
attention to these products is suggested by the aging of the
U.S. population: the proportion of the U.S. population over the
age of 65 has grown from 6.8 percent in 1940 to 11.3 percent
in 1980, and is projected at 12.2 percent in 2000 and 16.2 percent
in 2020. A central issue for the future is how prospective changes
in federal programs that affect the well-being of the elderly,
notably Medicare and Social Security, will alter private financial
arrangements. Whether potential reductions in these "annuitized"
benefit streams will lead to increased private demand for annuity
contracts remains an open issue.
A second unresolved policy issue concerns fundamental tax reform
and the demand for annuity products. At least part of the demand
for these products stems from the opportunity to defer tax on
capital income during the accumulation phase of these policies.
A shift toward consumption taxation or a general reduction in
marginal income tax rates would therefore reduce the demand for
these products.
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