History of Annuities
Annuity is not something that is new, in fact the origin of annuities can be traced back to the Roman times. But in modern era context, the significance of annuities increased during the 17th century, when annuities were started to be used as fund raising vehicles in US. Though by that time it was already popular in some European countries. For example:- participants in early government annuities would purchase a share of the tontine for £100 from the UK government. In return, the owner of the share received an annuity during the lifetime of their nominated person. As each nominee died, the annuity for the remaining proprietors gradually became larger and larger. This growth and division of wealth would continue until there were no nominees left.
In United States annuities made its first mark during the 18th century. In 1759, a company in Pennsylvania was formed to benefit Presbyterian ministers and their families. Ministers would contribute to the fund, in exchange for lifetime payments. The Pennsylvania Company for Insurance on Lives and Granting Annuities was the very first American company to offer annuities to the general public and it happened around 1912.
Annuities started to grow rapidly in the late 1930s. Concerns about the overall health of the financial markets prompted many individuals to purchase products from insurance companies. Insurance companies were seen as stable institutions at the time of great depression, which could make the promised payouts. The New Deal Program introduced by FDR unveiled several programs that encouraged individuals to save for their own retirement. It was around this time, too, that group annuities for corporate pension plans really developed.
Annuities were attractive due to their tax-deferred status. Because they were issued by insurance companies, annuities were always able to accumulate without taxes being taken out at year-end. This allowed annuity owners to put the time value of money on their side.
The first variable annuity was created in 1952. It credited interest based on the performance of separate accounts inside the annuity. Over the years, more features were added to annuities as well. Some contracts provided checkbook access to funds. Other annuities provided enhanced "bonus" rates, shorter maturity periods, and guaranteed death benefits if the owner passed away unexpectedly.
Today, annuities are more popular than ever, with annual annuity sales estimated to be over $200 billion. Millions of prosperous-retirement-minded investors have been able to use the annuity structure to their advantage.