Variable annuities are a relatively new product to the UK. They are a type of drawdown pension offering a range of investments that also comes with an underlying guarantee of income for life. Some providers also guarantee the value of death benefits.
How do they work? When you take out your variable annuity, your provider sets a guaranteed income for life based on your age. As the plan is invested in funds, its value fluctuates in line with the investment performance of those funds. At regular intervals – for instance every three to five years - your provider reviews the variable annuity and if the funds are worth more, your guaranteed income can increase in proportion to the fund increase (although there may be a cap on that increase). If the funds are worth less, then your guaranteed income will not fall.
Is my income guaranteed? Yes, income is guaranteed for life at the rate set when you take out the variable annuity.
Considerations While income is guaranteed for life, the level at which this is set is likely to be lower than that available from a conventional annuity. You need to accept that if the investments do not perform well, then you may be worse off than if you had taken out a conventional annuity at the outset. There are also additional charges associated with the investment of funds that can reduce the return you receive. Read about the advantages and disadvantages.
We would aways ask you to discuss your situation with a financial adviser.
If you don't have an adviser you could use Unbiased.co.uk to help you find one.
Useful links Just Retirement's annuities
Annuity options