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Variable annuities
are “the Emperor’s new clothes” of the pensions
world, according to Hargreaves Lansdown (HL).
The financial service provider says that the level of industry excitement
has far exceeded customers’ willingness to pay the high charges
associated with these products.
Nigel Callaghan, pensions analyst at HL, commented: “The current
offering of variable annuities are demanding a high price and still
leaving investors exposed. However the market is in its infancy
and we anticipate rapid development as the number of people retiring
balloons. Variable annuities need to demonstrate that they can compete
with a combined drawdown and annuity strategy in terms of cost,
guarantees and simplicity.”
There are currently four variable annuity providers available in
the market, with offerings from AEGON, Hartford, Lincoln and MetLife.
Standard Life has recently announced that it is about to embark
on the market, and AXA has revealed development plans, though not
provided any detail.
In its examination of the variable annuities market, HL concluded
that AEGON’s offering has transparent pricing but exposure
to equities is very limited, with a contract lasting only to age
75, although there is the option to roll over into an AEGON annuity.
Hartford, according to HL, has a decent range of funds, although
the increase in the guaranteed income is limited to ten per cent
every year. The income guarantee ends at age 75. Lincoln is apparently
“overcomplicated” in its calculation of the guaranteed
income level, resulting in a low starting income, and MetLife has
a small fund choice and an expensive contract if you want to have
an actively managed equity portfolio.
- Pensions Age
August 2008
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