Or, to put it another way; might there be some doubts about the future development of the UK variable annuity market following the dramatic withdrawal recently of US based Hartford?
Experts are suggesting that the Hartford’s recent withdrawal from the UK market has cast some real doubts over the place of third-way annuities in the UK retirement market. Opinion is divided over the benefits of these annuity products and the extent to which the UK market is dominated by traditional lifetime annuities provided by insurance companies.
Just last week, The Hartford announced to the market that it will no longer accept new pension annuity business in the UK or Ireland, but that it will keep its Dublin office open to service existing clients. It also plans to withdraw from Japan and has cancelled plans to launch new products into Germany. The firm stated that it decided to close its UK operations as it needs to preserve capital, and some commentators are saying that a rapidly falling share price has led to the decision.
However, some experts in the annuity market believe the products The Hartford was offering are what is at fault, and that they are simply not attractive enough to our UK consumers. Some say that the complexity of third-way annuities is quite off-putting for advisers, never mind consumers. Some are saying that UK buyer does not really like complexity, and even independent financial advisers (IFA’s) have been struggling with the products on offer.
Vince Smith-Hughes, head of development at Prudential, thinks that cost is a major problem with providing these guaranteed third-way annuity products, after his own firm looked at the market, and he believes that the problems at The Hartford are linked to the pension and annuity market as a whole and the reason they decided not to offer this type of product. The guarantees provided are backed by derivatives, which have become pretty expensive for insurers and these costs have to pass on to consumers, making the products somewhat unattractive.
Some of the UK’s largest third-way annuity providers say the products are actually performing well, citing a study by Watson Wyatt, which suggested that the market for these annuities had doubled in size between 2007 and last year.
A difficult call, but yes, these products are quite complex, and that is why the vast majority of consumers stick to researching annuity quotes to find the best annuity rates. More straightforward.
