More advisors say tax deferral will become increasingly important in annuity sales.

In a recent poll by the Insured Retirement Institute, 28% of advisors expect tax deferral to take on greater importance in the next five years, a “notable increase” from 20% of advisors expressing this opinion in 2011. Currently, 56% of advisors consider tax-deferred growth an important factor when evaluating and selecting annuities, according to the IRI poll.

Historically, tax deferral has been a major benefit of deferred annuities. In an IRI survey of annuity owners, though, only 19% cited tax-deferred growth as a primary reason for purchasing annuities. That response ranked third behind guaranteed income in retirement (35%) and advisor recommendation (26%) as the main motivators. Principal protection (7%) and death benefits (3%) were other reasons given for buying an annuity.

Nevertheless, higher taxes are on the way for many clients. A Medicare surtax effectively adds 3.8% to taxes on investment income for those at certain income levels; for individuals, adding non-investment income can push up gross income and thus may push investors into surtax territory. Other recent changes in tax law have increased taxes on ordinary income, qualified dividends, and long-term capital gains for higher-income taxpayers. Some clients with not-so-high incomes may see effective tax rates increase as they run into phaseouts of itemized deductions and personal exemptions.

What’s more, additional tax increases may be coming. As the IRI report points out, the Congressional Budget Office (CBO) has released a budget and economic outlook going out to 2023. The CBO found that budget deficits are projected to increase later in the coming decade while federal debt is projected to remain historically high, on an upward path. “The federal government will continue to look for ways to resolve the coming fiscal imbalances noted by the CBO,” the IRI concludes, “potentially through increases in revenue and reductions in spending.”

If those increases in revenue come in the form of higher taxes on individuals, tax deferral will become more valuable. Indeed, expectations of future tax hikes may spur the sale of deferred annuities. Advisors may find it pays off to include the benefits of tax deferral when discussing annuities.