UK variable annuity sales rose to £1.09bn in 2011, an increase of 15% over 2010, according to research by Towers Watson. Quarterly sales exceeded £300m in the last quarter of 2011 for the first time in over two and a half years. Policy numbers also increased in comparison to 2010 by 11% to close to 13,700.
Andy Sanders, senior consultant at Towers Watson, said: "Despite the continuing difficult economic backdrop, variable annuity sales grew significantly in 2011, in both premium and policy number terms. Further progress will however depend on establishing the virtues of variable annuities with an increasing number of consumers - variable annuities represented around 3% of total 'at-retirement' policy sales in 2011."
Variable annuities are unit-linked investment products with explicit guarantees, and are currently available from a small number of providers, either as a pension or as a life assurance (investment) bond. The products vary in the way they are constructed and to whom they appeal and when available in a pension wrapper are usually designed to provide regular income payments that are guaranteed not to fall, but may also rise if investments perform well.
In future Towers Watson sees more emphasis on alternatives to conventional annuities - such as enhanced annuities, fixed term (temporary) annuities and variable annuities - and considers that it is likely to be appropriate for a sizeable segment of consumers to make use of these alternatives in delivering retirement income.
Mr Sanders said: "With ever increasing life expectancy, newly retiring pensioners who are prepared to take a long-term view of their financial options may welcome the combination of potential income growth and guarantees on offer through variable annuities. Evolving designs to provide compelling propositions, as well as communicating that there are also risks associated with locking into prevailing market conditions through a one-off annuity purchase at retirement, will be the keys to future market growth."
Author: Pensions WorldPensions World is the leading monthly magazine for pensions professionals published by LexisNexis.