Shocking? Taxed on payout is a discount versus ordinary stiffs who get taxed every year. A percentage taken from the increase of an amount every year, is more than the same percentage taken at the end; as the former foregoes the opportunity to earn a return on the amount taxed earlier. This is quite significant over longer periods. (I learned that from one of Warren Buffet's annual letters - I think he was explaining why insurance is a great business to be in, because the same effect applies to long-horizon insurance policies).