The variable annuity is becoming an increasingly popular choice for many people as a flexible alternative to the more traditional annuity. The UK pension regulations have been undergoing a number of changes in Recent years as successive governments have sought to ensure that the pensions system can cope with an increasingly aging population. With life expectancy levels higher than ever before and with the elderly enjoying better health than in the past, the need for flexible solutions for individuals of pension-able age is a pressing matter. The idea that 'one size fits all' has been embodied in the legislation until now, with the regulatory requirement to purchase an annuity by the age of 75. This restriction will be lifted in April and it is expected that the already strong demand for variable annuities will grow.

A Flexible and Secure Option

A traditional annuity is less attractive to many people as the costs of providing a guaranteed income every year from retirement to death, along with a guaranteed level of income growth can severely impact on the level of income at the start of retirement. This has meant that many people simply cannot afford to retire at 65, even if they want to. For those reaching retirement age now, and in the future, it is a stark reality that in order to maintain their standard of living, they can expect to continue working to the age of 70. In the past lower life expectancy meant that people retiring at 65 were close to the end of their lives. However today anyone retiring at this age or earlier, can reasonably expect to be getting a telegram from King William one day. The flexibility and better return in the early years of retirement that variable annuities can offer is probably one of the key reasons that these products are seeing consistently high sales.

The Third Way

In addition to a better return from the start of their lives, variable annuities form a more secure option than other income drawdown pension schemes. With many people concerned about rising costs of living and the poor performance of the financial markets in recent years, these products are offering a great solution. A variable annuity is also known as a 'third way pension' - a good description as it provides a cross over between the annuity and the riskier income drawdown. The product offers guaranteed income for life as with the more traditional products, while offering the flexibility associated with income drawdown. The combination of guaranteed income and the fact that the capital can be left to spouses or dependents makes this option the most attractive for many seeking security in their retirement.