Two in every five financial advisers have little or no knowledge of variable annuities, research by actuary Watson Wyatt suggests.
The company says the survey of 50 advisers with clients nearing retirement shows providers have more work to do before IFAs can understand and accept variable annuities - products which offer an income level guarantee and equity exposure - as a mainstream product.
Colette Dunn, head of the strategy group within Watson Wyatt's insurance and financial services practice, says: “I guess [variable annuities have] not been around as long as other products."
Referring to Aegon UK's new '5 for Life' product as an example, Dunn adds: "The providers are generally not the mainstream providers and no one tends to use the term 'variable annuity' when they talk about the products.
“They’re gathering an awful lot of popularity among providers. They’re very exited about the idea of variable annuities and it is a concern that you then look at advisers’ opinions and there is quite a lot of difference in their enthusiasm and knowledge.
“It may require a big name entrant to come into market and roll out its usual publicity machine.”
The study also suggests that, of the 60% who have at least some understanding of the products, 70% rate them favourably for generating retirement income compared with conventional annuities and 60% compare them favourably with income drawdown.
However, the Government halted plans to introduce full hybrid annuities, which offer similar advantages to the variable variety in a bond, in its Pre-Budget Report (PBR) last October as it felt the products would appeal to a minority.
Watson Wyatt’s research echoes that sentiment, showing 97% say customers would need at least £50,000 for the annuity to work, while 40% believe consumers would need at least £100,000.
Meanwhile, two out of three advisers believe variable annuities would suit more than 10% of their clients.
The research also suggests 69% believe their clients would pay less than 1.5% a year for the guarantees offered by a variable annuity while Watson Wyatt expects charges to start beyond 1.5% and rise.
Dunn says: "A good proportion of advisers like the variable annuity concept and can see the value for their clients, but they still need some persuading about whether the benefits outweigh the costs.”
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