Despite doubt over their suitability for the UK pensions market, variable annuities are set to grow in popularity in the next few years, says Sun Life Financial of Canada.

New research from the group in September 2009 showed that 46 per cent of the 262 UK independent financial advisers (IFA) surveyed feel that the variable annuity market is building support in the UK, and 17 per cent believe it is up and coming. Only 11 per cent are pessimistic, and can never see the market taking off.

Fifty-four per cent of participants expect more advisers to see the benefits of this type of product in the coming years, and 71 per cent predict new providers will enter the market. However, 60 per cent do not expect one provider to dominate the market as it grows.

"These findings show that the IFA market is readying itself for an increased focus on variable annuities, as clients become more demanding about what they can expect pre, at and post retirement," commented Mark Stopard, head of marketing at Sun Life Financial of Canada.

"There has been a gap in the UK market which traditional solutions have not been able to cover. The evidence from abroad is that variable annuity products can provide both the growth and security that customers need and this research shows that advisers expect a similar turn of events in the UK."

Meanwhile, the latest annuity rates from the Alexander Forbes Annuity Bureau show that level annuity rates have begun to rise, with Aviva offering the best rate of £6,420 per annum, an increase of £120 on its rate in December for a 60 year old male with a £100,000 purchase. RPI-linked annuities also rose, with the top rate again from Aviva, up £120 per annum since December (to £3,770 for a male, aged 60 with £100,000 purchase).

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