Question: What impact will the Hartford's decision to exit the UK have on the variable annuity market?

Each month, we ask our industry to answer one big question!

Karin Brown is annuity and solutions delivery director at Prudential

Hartford's presence in the market has been a real opportunity for the market to understand that there is much more to retirement than just level annuities. Many customers are looking for a mix of flexibility and guarantees to provide them with long-term potential growth in their income throughout retirement. Hartford's exit will leave something of a gap, but it will be filled by increased innovation by other providers.

Peter Carter is head of product marketing at MetLife UK

The variable annuity - or unit-linked guarantee - market has been one of the few success stories recently with Watson Wyatt estimating sales in Q1 of 2009 to be £370 million. That was up nearly 8% on the same period of 2008 and sales for all of 2008 more than doubled to £1.153 billion from 2007

Sales have continued to grow since the end of March and that is due to advisers and customers recognising the strength of the proposition which delivers a combination of equity-like investment performance without the downside.

Recent events have shown the risks of retirement planning and demonstrated the benefits of unit-linked guarantees.

Dr Ros Altmann's report Planning For Retirement: You're On Your Own, which was sponsored by MetLife, included research showing that 43% of pension savers would pay for a guarantee that they would not lose money on pension investments in return for a limit on potential gains.

The Hartford's decision was driven by issues around its parent company's capital base and risk management. Financial strength and risk management are key to success in this market.

It is sad to see them go but the departure of The Hartford will have no long-term effect.

Andrew Gadd is head of research at The Lighthouse Group

Recent figures produced by Watson Wyatt confirmed that in the first three months of this year, total variable annuity sales were up 7.7% compared to the same period last year. But these figures were before the Hartford withdrew from the market followed by Aegon announcing that it was replacing its Five for Life offering. We also saw various repricing exercises in March and April to reflect the increased cost of providing the guarantees for these products, potentially making them less attractive.

These developments are disappointing as I do want to offer maximum choice to investors and variable annuities do provide choice - hopefully as the at-retirement market continues to grow, other providers may decide to enter this space.

Aston Goodey is sales and marketing director at MGM Advantage

The problem with variable annuities is that they were an overseas concept that was 'shoe-horned' into the UK market, and many felt they were too complex and too expensive. The announcement by two major life offices to suspend plans to launch into this market some months ago should have cast doubt in all of our minds. In hindsight, it was a good decision.

Now, with Hartford's exit, and Aegon withdrawing their Five for Life product, it feels like variable annuities in their current form may have had their day.

That said, there is a very real need in this country for an annuity that has flexibility and income growth potential, and that better serves the needs of the mass market/mass affluent customer. While the variable annuity market may go into decline, there is big potential for a new alternative annuity market to take hold.

Steve Hunt is managing director at Rockingham Retirement

Whenever a product is taken out of market this reduces competition, which has to be bad for the consumer.

The Hartford did have a good innovative product but it had its flaws which tipped it from being successful to not. Add to this the issue that a great many advisers in the market are possibly not as technically experienced as they should be when it comes to retirement income products, and it is clear to see that the Hartford always had an uphill struggle.

What is a shame is that they had just launched a TIP based on the same investment principles, which we at Rockingham were certainly considering.

Inevitably, the Hartford's exit will put some pressure on those remaining. In some ways it is good for them as now, there is less competition. But it does not help with getting their message over to the intermediaries who sell its products. Having a good product is one thing; instilling confidence among IFAs that the product will still be around in 12 months time is another. Taking on a new product involves a big investment of IFAs' time and that is something which is precious right now.

There is definitely a need for third way products. Annuities, like it or not, are poor value and many 'informed' customers do not like the concept of tying up their life savings in an irrevocable product like an annuity. On the other hand, putting your life savings into equities is probably worse than buying an annuity. Hartford thought it had the 'silver bullet' but underestimated the elasticity and other complexities of the UK market. Hopefully others will learn from the Hartford's mistakes and come in with a viable alternative.

Steve Lowe is marketing director at Living Time

As a company that introduced innovation to the UK retirement market, as well as being an advocate of greater choice for retirees, we are disappointed that The Hartford has decided to withdraw its product.

It is critical that advisers do not switch back to the 'default mode' of offering would-be Hartford clients a lifetime annuity instead. Currently, nine out of 10 retirees buy a lifetime annuity. For some this is the best, perhaps only, choice available to them. For others, a lifetime annuity represents permanent exclusion from more flexible benefits that could suit them later in retirement. Those that go on to live for 20, 30 or even 40 years may spend a long time regretting the choices they made - or were advised to make - at the point of retirement.

Despite the loss of The Hartford, the at-retirement market now offers a plethora of products to suit all needs and attitudes to risk. 'Offering More Options' must become the mantra of the industry to ensure consumers about to make one of the biggest investment decisions of their lives make the right choices.

Nigel Orange is technical support manager - pensions at Canada Life

The Hartford's sudden exit from the variable annuity market was not totally unexpected given several of its competitors had previously announced significant increases to the cost of their products due to the spiralling costs of providing guarantees. What effect this will have on the rest of the variable annuity market might be considerably different in the short term (12 months) compared to the longer. In the short term, given the current economic climate, the cost of providing guaranteed income is expensive. This cost is either reflected in the product or the provider has to absorb the cost which is clearly unsustainable. How long interest rates stay at the current level and stock markets remain volatile might well determine the short term future for variable annuities. How many providers specialising in this market will be prepared to stick with flat sales in the short term but remain for the longer haul is questionable. Financial advisers have been slow to embrace these 'third- way' annuity products even in a more buoyant market and take a view they are both difficult to compare and price. The longer term future for variable annuities could rest with the challenge on how providers make the product guarantees more affordable, transparent and simpler to compare.

Bob Perkins is technical manager at Origen

The Hartford's exit was bound to have ramifications for the UK market, not least because it reduces the current number of 'players'. However, there is a growing interest in insurance guarantees and the likelihood is that sales of such products will continue to increase.

Whether or not we will see many new providers enter the arena will depend upon a number of issues, not least of which is the actual cost of providing the guarantees. We have seen the cost of guarantees escalate in recent months so that products have been reviewed, re-costed or had the income guarantees adjusted. Though it could be argued that the cost of guarantees is less of an issue where the requirement for that guarantee is an over-riding factor must not be ignored.

The additional appeal of these products is the expectation that over time they will provide greater flexibility than a conventional annuity and less volatility than unprotected investment funds. However, charges can significantly affect investment performance and it may be that investors will have to accept a higher degree of risk in exchange for the prospects of the additional flexibility.

Overall, these plans are very worthy of consideration and in the long term we should expect the market to grow rather than contract.

Adrian Shandley is managing director at Premier Wealth Management

The retreat of the Hartford came as no real surprise to me. There are a number of large American Life offices that keep coming back to attack the UK financial services market, historically they have always had their fingers burnt and beat an unceremonious retreat. Once the memory has faded they come back again to repeat the exercise!

So in this regard the actual retreat of the Hartford isn't in itself a major problem for the variable annuity market, but the direct impact will be felt in the reduction of players within the variable annuity arena. I would expect that other variable annuity providers will exit in the not too distant future, and I suggest that we might well be looking to another American owned company to be the next one to leave.

A reduction in the number of providers obviously leads to a lack of competition and this in turn will lead to poorer rates for those looking to purchase variable annuities, in this regard the development is not good for clients.

But personally I would like to put my faith more in the historically UK based companies who have more experience in the UK market.

The wider picture is the increasing cost of the guarantees on these types of products which will inevitably also lead to a reduction in terms being offered. Until we are sure that the volatility recently witnessed in UK markets has subsided, costs of guarantees and structures will not stabilise.

If the products can survive this year I think they have a bright future even if there are fewer providers.

Andrew Tully is senior pensions policy manager at Standard Life

The immediate impact is likely to be less money moving to variable annuities as, alongside Hartford's withdrawal, other providers offering third way products are either increasing charges or reducing the value of their guarantee.

However, I still believe there is a need and desire from consumers for a product which sits between an annuity and drawdown. People like the guaranteed income stream provided by an annuity, but also want flexibility - to vary income to suit their needs, to benefit from any upside in equity markets and to improve benefits paid to their family should they die. Drawdown provides this flexibility but has a higher risk than some people are comfortable with, especially those with smaller funds.

A well-designed, reasonably charged, third way product has the ability to provide the best of of both worlds. Once markets settle down, I believe third way products have the potential to be enormously successful in the UK, and I expect more providers will enter the market over the next few years.