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Capital Formation Newsletter
September-October, 2006, Vol. 31, N0. 5
The Role of Annuities in Bolstering U.S. Retirement
Security
U.S. Under Secretary Dobriansky Speaks at ICCF
Roundtable on the Asia-Pacific Partnership
Philanthropy Roundtable Hears ACCF Views
ACCF Hosts 145th Policy Evening
ACCF Evening on Annuities and Retirement
Policy
Special
Report: New ACCF Research Demonstrates Beneficial Effects of Increased
Use of Annuities
(PDF
Version)
The Role of Annuities in Bolstering U.S.
Retirement Security
Alooming problem facing over 70 million aging Baby Boomers - how
to manage their savings during retirement and not outlive their
assets - could be addressed by offering tax incentives to annuitize
savings held in 401ks, IRAs and other sources of retirement income,
according to new research presented at the ACCF forum on “The
Role of Annuities in Bolstering U.S. Retirement Security.”
Increased use of annuities by retirees can also boost U.S. GDP
levels, employment and the S&P 500. (Annuities are financial
products that provide insurance against outliving one’s financial
assets by allowing a lump sum of wealth to be converted into a stream
of future payments that typically continues as long as someone is
living.)
These conclusions were presented at a forum at the National Press
Club hosted by the American Council for Capital Formation on October
10, 2006. The authors of the new studies examined the possible consequences
of tax exemptions on household annuitization levels as well as the
macroeconomic effects of increased annuity purchases.
“Similar to the boost that tax incentive policies have given
401k and IRA plans, offering exemptions on annuity purchases could
significantly boost annuitization with a relatively modest revenue
cost to the government,” William M. Gentry, Associate Professor
of Economics at Williams College, told forum participants.
In the microeconomic analysis, Gentry and Casey Rothschild, Assistant
Professor of Economics at Middlebury College, analyzed the impact
of H.R. 2951 by Rep. Earl Pomeroy (D-ND), which exempts up to $5,000
per individual ($10,000 per couple). The authors looked at the annuitization
behavior of households with differing levels of retirement preparedness
as well as revenue consequences and found that, if enacted, the
proposal would:
- Reduce the total cost of providing an annuity by as muchas 8%.
- Increase the amount the average retiree household annuitizes
by about $50,000.
- Reduce federal tax receipts by very modest amounts, around 10-15
cents per dollar of additional annuitization.
In the macroeconomic analysis, Allen Sinai, chief global economist,
strategist and president of Decision Economics, conducted simulations
to identify economic sectors potentially affected by increased annuity
purchases if the Pomeroy legislation had been enacted between 1995
- 2005 and found:
- Increase in Gross Domestic Product by $34 billion per year.
- Lower unemployment by 0.1% per year, up to 200,000 more jobs
annually.
- Increase in consumption by $36 billion per year.
“There are positive economic benefits associated with a tax
incentive on annuities,” Dr. Sinai said. “We see increased
consumption and better lifestyle in retirement years from a government
investment that returns a big bang for the buck.”
The new ACCF research comes at a pivotal time as the traditional
pension system is in decline and defined contribution plans are
on the rise - placing retirement security directly in the hands
of the employee. As millions of Baby Boomers approach retirement
and life expectancy is on the rise, retirees face an increasing
risk of outliving their assets.
To read more about the studies, see the Special Report in the
September- October edition of Capital Formation or visit www.accf.org.
U.S. Under Secretary Dobriansky Speaks at ICCF
Roundtable on the Asia-Pacific Partnership
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The Hon. Paula J. Dobriansky, Under Secretary
for Democracy and Global Affairs, U.S. Department of State,
addressed diplomats from nearly 20 nations at the ICCF’s
roundtable in Washington, D.C. on September 28, 2006. The roundtable
focused on “The Asia-Pacific Partnership on Development
and Climate: How Will It Impact Asia and Other Economies.”
Discussants at the session included Amin MA, second secretary
for Economic Affairs, Embassy of China; Manoj Joshi, economic
counselor, Embassy of India; and Kyong-yul Lee, economic counselor,
Embassy of Korea. Also speaking at the roundtable was Dr. W.
David Montgomery, vice president, CRA International, who commented
on “The Asia-Pacific Partnership: |
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Its Role in Promoting a Positive Climate for Investment, Economic
Growth and Greenhouse Gas Reductions.” Dr. Margo Thorning, ICCF
managing director, moderated the discussion.
Philanthropy Roundtable Hears ACCF Views
| ACCF Senior Vice President
and Chief Economist Dr. Margo Thorning addressed members of
the Philanthropy Roundtable at the group’s meeting on October
4, 2006 in New York City. The Philanthropy Roundtable is a national
association of individual donors, foundation trustees and staff,
and corporate giving officers. The theme of the meeting was
“Great Debates in Environmental Policy and Philanthropy”
and featured speakers on climate, energy and conservation policies.
Dr. Thorning spoke as a member of a panel on “Two Views
on Action on Climate Change.” Appearing on the panel with
Dr. Thorning were Dr. Michael Oppenheimer, Albert G. Milbank
Professor of Geosciences and |
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International Affairs, Princeton University, and George Ohrstrom,
a private investor, part-time president of the Ohrstrom Foundation,
and a member of the boards of various private companies and nonprofit
organizations.
ACCF Hosts 145th Policy Evening
Guests at the145th ACCF Economic Policy Evening - influential policymakers
from Congress and the Bush Administration, top journalists, and
business and association leaders - considered The Economy, Economic
Policy and Politics on November 7 at the dinner on September 12.
Pictured left to right: 1) ACCF president and CEO Mark Bloomfield,
and Representatives Jim Kolbe (R-AZ), Dennis Moore (D-KS), and Scott
Garrett (R-NJ); 2) Under Secretary of State for Democracy and Global
Affairs Paula J. Dobriansky, U.S. Department of State, and John
Cochran, senior Washington correspondent, ABC News; 3) John McKinnon,
White House correspondent, The Wall Street Journal, and Michael
Barone, senior writer, U.S. News and World Report, and principal
co-author, The Almanac of American Politics; 4) Mr. Cochran, Dan
Brouillette, senior vice president, Industry Affairs, USAA, and
Steve Ubl, president and CEO, Advanced Medical Technology Association;
5) L. Ray Harry, director of Environmental Affairs, Southern Company,
Mr. Brouillette, and Robert R. Zoglman, vice president, Government
and International Affairs, Westinghouse Electric Company; and 6)
Ranjana V. Khanna, assistant secretary general of Americas, Federation
of Indian Chambers of Commerce and Industry (FICCI), and Dr. Margo
Thorning, senior vice president and chief economist, American Council
for Capital Formation.
ACCF Evening on Annuities and Retirement
Policy
On October 10, the American Council for Capital Formation brought
together knowledgeable experts on retirement issues from the Bush
Administration, think tanks, the media, and the insurance industry
for a dialogue on The Role of Annuities in Bolstering U.S. Retirement
Security. The session was the ACCF’s 146th Economic Policy
Evening. Pictured left to right: 1) David R. Odenath, Jr., president,
Prudential Annuities, Richard Silver, executive vice president and
general counsel, AXA Financial, Inc., and ACCF president Mark Bloomfield;
2) Kathleen Day, staff writer, The Washington Post, and Hon. Ann
L. Combs, assistant secretary, Employee Benefits Security Administration,
U.S. Department of Labor; 3) Dr. Allen Sinai, chief global economist,
strategist, and president, Decision Economics, Inc., Terry Savage,
nationally syndicated personal finance columnist, Chicago Sun-Times,
and Mark D. Phelan, senior vice president, Individual Investment
Group, Nationwide Financial; 4) Nicholas Platt, executive vice president
and chief operating officer, PLANSPONSOR, Liam Pleven, reporter,
The Wall Street Journal, Mr. Phelan, and Mark Thresher, president
and chief operating officer, Nationwide Financial Services; 5) Mr.
Bloomfield, John Rother, group executive officer of Policy and Strategy,
AARP, Robert DeFillippo, corporate vice president and chief communications
officer, Global Communications, Prudential Financial, and Mary Beth
Franklin, senior editor, Kiplinger’s Personal Finance Magazine;
and 6) Dr. Margo Thorning, ACCF senior vice president and chief
economist, and Ms. Savage.
Special Report: New ACCF Research Demonstrates
Beneficial Effects of Increased Use of Annuities
On October 10, 2006, the ACCF hosted a forum at the National Press
Club on “The Role of Annuities in Bolstering U.S. Retirement
Security.” The ACCF forum featured new microeconomic research
by Professor William M. Gentry, associate professor, Williams College,
and Professor Casey Rothschild, assistant professor, Middlebury
College, and a new macroeconomic analysis by Dr. Allen Sinai, chief
global economist, strategist, and president, Dr. M. Cary Leahey,
senior managing director and senior global economist, and Dr. Chip
Curran, senior vice president and senior economist, Decision Economics,
Inc. This Special Report summarizes the findings of both studies.
Read
the Full Report (PDF)
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