提防年金(ANNUITY)產品

Updated on January 30, 2008.

VARIABLE ANNUITIES are sold more aggressively than fake Gucci handbags on the streets of New York City. Thanks in part to commissions of 5% or more, sales of variable annuities have soared over the past decade.

But popularity is no indicator of practicality. The truth is, annuities only make sense for a tiny fraction of the population. (See story.) The rest of us should be buying plain old mutual funds. Of course, that’s not easy to say to your dark-suited cousin who keeps taking you out for steak and Lafitte-Rothschild Bordeaux in hopes that you will sign on the dotted line. But, next time he invites you, you can bring along this article. Just make sure he pays the bill before you give it to him.

The Basics
First, a primer. A variable annuity is basically a tax-deferred investment vehicle that comes with an insurance contract, usually designed to protect you from a loss in capital. Thanks to the insurance wrapper, earnings inside the annuity grow tax-deferred, and the account isn’t subject to annual contribution limits like those on other tax-favored vehicles like IRAs and 401(k)s. Typically you can choose from a menu of mutual funds, which in the variable annuity world are known as “subaccounts." Withdrawals made after age 59 1/2 are taxed as income. Earlier withdrawals are subject to tax and a 10% penalty.

Variable annuities can be immediate or deferred. With a deferred annuity the account grows until you decide it’s time to make withdrawals. And when that time comes (which should be after age 59 1/2, or you owe an early withdrawal penalty) you can either annuitize your payments (which will provide regular payments over a set amount of time) or you can withdraw money as you see fit.

Fees, Fees and More Fees
Variable annuities are notorious for the fees they charge. Indeed, the average annual expense on variable annuity subaccounts currently stands at 2.44% of assets, according to Morningstar. (This figure includes fund expenses plus insurance expenses.) The average open-ended mutual fund (excluding municipals), on the other hand, charges just 1.32%. Unfortunately, variable annuity fees don’t stop there. Many variable annuities act like B shares of mutual funds, paying commission from the ongoing fees; the average contract fee is $30 to $35.

What Death Benefit?
The death benefit basically guarantees that your account will hold a certain value should you die before the annuity payments begin. With basic accounts, this typically means that your beneficiary will at least receive the total amount invested — even if the account has lost money. For an added fee, this figure can be periodically “stepped-up" or earn a small amount of interest. (If you opt not to annuitize, then the death benefit typically expires at a certain age, often around 75 years old.) Well, given the fact that stocks have returned an average of 12% annually (assuming dividends are reinvested) from 1926 to 2007, according to the Center for Research in Security Prices, over the long haul you need this insurance about as much as a duck needs a paddle to swim.

OK, investors who bought annuities and then died within the next two months probably got their money’s worth. But, consider this: The death benefit was triggered in only 1% of all policies from 2002 to 2004, according to Limra International, an insurance-industry research group.

While all variable annuities come with a standard death benefit, the average price for additional death benefits is 0.43%, according to Morningstar.

Surrender Fees
Another problem with most variable annuities is that your money is often locked up for several years — typically five. Trying to withdraw funds during this time will result in huge fines. These fees typically decrease as the years tick by. For example, you might be charged a 6% surrender fee for a withdrawal during your first year of ownership. After seven years, however, that could be just 1%. The average maximum fee is a steep 5.94%, according to Morningstar.

Early Withdrawal Penalty
As with most retirement accounts, if you withdraw funds before age 59 1/2, you’ll be hit with a 10% early withdrawal tax penalty.

The Taxes
Gains in variable annuities are taxed at ordinary income tax rates, which go as high as 35%. For most investors, that’s a whole lot higher than the 15% rate they now pay on their long-term mutual fund gains. (Dividend income is taxed at a rate of up to 15%.) And that tax difference can easily eat up the advantage of an annuity’s tax-free compounding. “You’re generally going to have to wait 15 to 20 years before these suckers become more tax efficient than a mutual fund," says CFP Dee Lee of Harvard, Mass.

Residents of some states may pay even more taxes on nonqualified variable annuity accounts. (That is, accounts that are not purchased within an IRS-approved retirement plan like a 401(k), 403(b) or IRA.) Some states also add a tax for variable annuities purchased within a qualified account.

The World’s Lousiest Estate-Planning Vehicle
There’s no getting around the income tax due on annuities. In fact, if you die with money remaining in your annuity, your beneficiary will inherit all the taxes that you have deferred. Compare this to a mutual fund, whose basis is stepped-up at death. In that case, your beneficiary would owe no taxes on the gains. Both types of accounts — annuities and mutual funds — are liable for federal estate taxes on anything over the federal estate tax exemption ($2 million for 2007-2008).

Switch to a Low-Fee Variable Annuity
Now, if you’ve read all this and still want to buy an annuity, do yourself a favor and buy one with low costs and good investment options. These are available from mutual fund companies like Vanguard(average total expenses, 0.57%, including mortality and expense risk charges) and T. Rowe Price(average mutual fund expenses range from 0.35% to 1.05%, plus an additional 0.55% mortality and expense risk charge). Investors who already own run-of-the-mill high-priced annuities should consider a tax-free transfer — called a 1035 exchange — to a better quality, low-fee annuity. Just be sure to confirm that your surrender charges have expired before you make the switch.

From SmartMoney

http://www.smartmoney.com/personal-finance/retirement/whats-wrong-with-variable-annuities-9512/

華爾街日報報導EQUITY INDEX 年金訴訟多

近來許多聽眾讀者來電子郵件，問我有關於EQUITY INDEX ANNUITY (與股票指數掛鉤的年金)，因為現在許多推銷員(包括﹕理財顧問、會計師、律師等)都在推銷這種比較新的年金產品。我給他們的勸告都是﹕不要盡信推銷者的促銷言論，一般這些EIA都不適合投資者。

以下是零七年八月八日在華爾街日報的專文報導，不單敘述了許多與EIA有關的訴訟實例，更指出這種年金產品的問題，請凡是考慮投資EIA種類年金的朋友細讀。

Backlash Hits Annuities Tied To Stock Market

Wave of Lawsuits Take Aim  At Sales Practices, Suitability
Of Equity-Indexed Products

By KELLY GREENE
August 8, 2007; Page D1

Equity-indexed annuities are among the hottest products sold through seminars, infomercials and free-dinner events that target older adults with investment pitches. Now, insurers that sell them are facing growing legal claims from investors and state regulators who allege that the companies or their agents are using deceptive marketing or targeting consumers who are too old to benefit from the products. 

FAIR WARNING 

Equity-indexed annuities can be complex. Here’s what to consider:

• Make sure you understand how gains will be calculated.
• Check for hidden penalties for early withdrawals.
• These annuities may not be suitable for older adults because funds may be locked up for several years. 

In the biggest such case, the Eighth U.S. Circuit Court of Appeals in St. Louis last month upheld the class-action status of a lawsuit that covers more than 400,000 investors who bought equity-indexed annuities from Allianz Life Insurance Co. of North America, a unit of Munich-based Allianz SE and the top seller of this type of annuity in the U.S. More than a dozen federal lawsuits against a number of insurers also are seeking class-action status in courts across the country. Meanwhile, attorneys general and regulators in Illinois, Minnesota and California are pursuing claims against insurers selling the products.

“Equity-indexed annuities have emerged as the vehicle of choice for unscrupulous insurance agents," says Roxanne Rehm, assistant general counsel for the Florida Department of Financial Services. Older investors, she contends, “don’t realize they’re long-term investments, and once they realize they can’t access the funds, it’s usually too late."

An equity-indexed annuity, as the name indicates, is one whose performance is tied to the stock market. A person invests a lump sum, or makes a series of payments during a “deferral period" that is often five to six years, and is guaranteed a minimum return based on changes in an equity index (like the Standard & Poor’s 500-stock index). If stock prices rise, returns can increase; if stocks fall, investors at worst realize no gains. When the deferral period ends, investors can take either a lump-sum payment or “annuitize" the account, meaning they would get a series of payments over a set period, or for life.

The promise of potential gains and little downside risk has fueled sales of equity-indexed annuities, which climbed to $25.3 billion in 2006 from $6.5 billion just five years earlier, according to Advantage Compendium Ltd., a consulting firm that tracks annuity data.

But critics say equity-indexed annuities do, in fact, carry risks, especially for older investors who may need access to their money before the investment’s term ends. Some of these annuities are structured to provide only a small portion of market-index gains; carry high surrender, or early withdrawal charges (12.5% for some of the more popular products) that can last for much or all of a contract’s term; and often involve relatively rich sales commissions that regulators say can make it tough for consumers to get unbiased advice.

Like some other types of annuities, equity-indexed annuities can be useful for investors seeking guaranteed income. But equity-indexed products also offer some potential for gains tied to the stock market. It’s important for investors to understand such terms as how the interest will be calculated and if there are hidden penalties. There is controversy whether equity-indexed annuities are appropriate for older people because their money is typically locked up for several years.

Some advisers suggest investors compare returns on equity-indexed annuities with other products such as certificates of deposit, which can yield around 5% these days, and variable annuities with guaranteed minimum income benefits, which offer a similar downside safety net.

The big class-action case against Allianz centers on the marketing of so-called immediate bonuses that are paid to people when they buy an annuity, typically an amount between 5% and 10%. Plaintiffs say investors actually have to wait years for the money, if they can get their hands on it at all; Allianz responds that the bonuses are immediate because their value is credited to investors’ accounts the day they buy the annuity, meaning they can start earning interest based on a bonus’s value right away.

In September, Michael Altschul, a 60-year-old sales representative in Laguna Niguel, Calif., paid $250,000 for an equity-indexed annuity from Allianz after hearing it described in a radio infomercial. “The protection of principal was a huge draw for me," he says, as was the $25,000 bonus. Mr. Altschul says the agent who sold him the policy told him he could withdraw 10% of his initial investment each year for 10 years, and then withdraw the balance.

But in June, he noticed an online article about the Allianz product he bought, posted by a financial planner, and realized he can withdraw 10% a year only for the first five years, although this would cut into his gains. After that, unless he annuitizes the balance for 10 years, he would lose the promised bonus and much of the interest his money could earn, and could be subject to hefty surrender charges. “That was news to me," he says.

An Allianz spokesman says that privacy laws prevent the insurer from discussing Mr. Altschul’s individual situation, but the materials the insurer provided “at the point of sale clearly explain the product," and the insurer encourages customers with concerns to “contact us so that we can conduct a thorough review."

A lawsuit filed by Illinois Attorney General Lisa Madigan last year in Sangamon County Circuit Court alleges that “deceptive" mailers sent to older people offering help with estate planning and Medicare were used to schedule appointments with agents selling annuities for American Investors Life Insurance Co., now part of Aviva PLC. Mary Menges, a 70-year-old retired nurse in Collinsville, Ill., says she responded to a postcard offering help in “understanding your money situation" two years ago and was persuaded to move her individual retirement account, $170,000 in mutual funds, into an equity-indexed annuity.

“I didn’t know this was an insurance company at all," she says. After her son learned about the move and explained the restrictions on withdrawals to her, the mother and son wrote a letter to the company and also reported her experience to the attorney general’s office. She got her money back, she says.

Michael Vaughan, a Kansas City, Mo., attorney representing American Investors, says the company has “seen no evidence that this is a broad-based issue." He declined to comment further.

The California Department of Insurance has taken a close look at Allianz’s marketing to older people, specifically examining sales to 126 people who were at least 84 years old, and who replaced existing annuities with equity-indexed or immediate annuities. Elderly customers incurred new surrender charges in more than 100 such cases from Jan. 1, 2004, through July 31, 2005, the department says in a regulatory filing.

Allianz says age is only one of a number of factors involved in determining whether an annuity is appropriate for a customer, and that its “business conduct was proper."

Insurers selling equity-indexed annuities are starting to face challenges from securities regulators as well. Debate has raged for at least two years among securities regulators, insurance departments and industry trade groups over who should have oversight. So far, the Securities and Exchange Commission hasn’t weighed in, but it could deem the products securities if it chose to do so.

In December, Massachusetts’s top securities regulator, Secretary of the Commonwealth William F. Galvin, fined Investors Capital Corp., a unit of Investors Capital Holdings Ltd., $500,000 for allowing its representatives to use “unregistered investment advisory services to sell equity-indexed annuities to unsuspecting elderly customers." Steven Preskenis, Investors Capital Corp.’s chief operating officer and general counsel, said in a statement the company was pleased to resolve the issue and take part in restitution, and it looked forward to working with state officials to improve “oversight, understanding and education of these financial products."

And Joseph Borg, director of the Alabama Securities Commission, has found a new approach: “If the agents are advising people to sell mutual funds or get out of 401(k)s, they are acting as investment advisers. And in my state, being an unregistered investment adviser is a felony." In “dozens" of equity-indexed annuity sales the state has investigated in the past few years, he says, insurers have “paid the money back, plus 6% interest."