September 2, 2008
Index annuities are not securities, but merely a crediting method from an outside source, (ie SP 500)to compete with securities, but without the risk associated with purchasing any security by the contract holder. These are fixed annuities, which fixes the principal, and offers potential higher returns at best, while guaranteeing a minimum return for the life of the contract. There is nothing similiar for a risk adverse individual seeking higher returns, utilizing an outside crediting source, with so much safety of principal. In the past, the insuring company would "declare" the interest rate each year for fixed annuities. Banks offer CD's, with varying interest rates and are similiarly safe. Moreover, since fixed annuities are tax deferred, ordinary income taxes are paid upon with-drawal as opposed to capital-gains tax on securities. So if annuities are proposed to be classified as a security, then change the tax structure as well, and have a fairer playing field for annuities, and let's return to the pre-TEFRA days.