Variable annuities 'not suited' to in-retirement lifestyle

Variable annuities are more suited to older people who are still working, rather than those in retirement, according to Just Retirement.

Nigel Barlow, head of retirement income solutions at Just Retirement, believes the products have been wrongly marketed at the post-retirement demographic.

Variable annuities, which offer a guarantee along with the possibility of income growth should investment markets perform well, have been marketed in the UK for several years as an alternative to traditional annuities and income drawdown.

However, Barlow believes the products are more beneficial for people who are approaching retirement, rather than those who have already given up work.

"If someone decides to work past the normal retirement age, say to 70 years of age, then they will probably want to continue benefiting from any growth in equity markets," says Barlow.

However, Just Retirement says people approaching retirement also need to protect themselves in case there is a major fall in the value of their investments, or if they lose their job, which is where the income guarantee comes important.

"If you're in a position where the economy is in recession and you get made redundant at age 68, you're probably not going to get another job, and are faced with having maybe 25% wiped off the value of your fund. The guarantee would then be useful to secure a level of income until markets recover", he adds.

Barlow says the products are less attractive to those who have already retired, and believes a level annuity is more suitable.

"Once a client is in the full decumulation phase, I think they are better off with a secure level of income, as variable annuity income guarantees are expensive and the risk of falling investments remains."