Why Are More Variable Annuities Being Sold?

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by: BSM
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Date: Tue, 12 Apr 2011 Time: 3:01 PM
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The Variable Annuity is becoming more popular as an alternative to the traditional fixed annuity due to the flexibility it offers. There are a large number of changes being made to the pension regulations in the UK in order to cope with our aging population, and with life expectancy levels constantly on the up and higher than ever, the need for more flexible retirement products is growing. The notion that one size fits all is being reassessed as policies are being updated - the requirement that everyone must purchase an annuity by the age of 75 is to become obsolete in April 2011. It is expected as a result that demand for variable annuities will continue to grow.
Flexible AND Secure
A fixed traditional annuity is becoming a less attractive option as the cost being passed down by insurers of providing a guaranteed fixed income for the rest of your life, however long or short it may be, is making the actual income afterwards much lower than it used to be. It means that retiring at 65 is unaffordable for many, and the reality is that for people retiring now, in order to maintain the standard of living they wish to, will need to be working until the age of 70.
In fairness, life expectancy has increased significantly in the last 50 years, and those retiring now at around 65 years old may well expect a letter from Prince William in the future. The flexibility offered by a variable annuity is one of the key reasons for their popularity.
A Third Way
A Variable Annuity is becoming an attractive third way, offering more flexibility than a typical annuity, but more security than an Income Drawdown product. As such it is known as a "third way pension" product, providing a crossover solution between the two products.
The combination of a guaranteed income and the fact that any remaining capital can be left to dependents makes this the best option for many people seeking security in retirement.

About the Author

John T Hughes is an expert financial writer with experience in the investment and retirement markets. John is resident writer at Independent Financial Advisor.co.uk, a site specialising in finding you expert advice on retirement products such as annuities.