The mounting cost of hedging is forcing variable annuity providers, including Lincoln and The Hartford, to review their product charges to try to recover some of those costs. Another provider, Aegon, has already increased its variable annuity pricing. These annuity contracts are, of course, only one of many pension options open to you.
As markets tumble around the world and more customers take up their guarantees, providers such as these face a bit of pricing dilemma that could threaten the attraction of variable annuities.
If you are a variable annuity manufacturer you face the problem of having to pay more for financial engineering in these products and then cutting either your profit margin from the product or charging it to the client. Should charges increase noticeably variable annuity contracts will not sell.
These third way annuity providers are starting to feel the real costs of expensive hedging strategies and are reviewing their product charges to decide whether the excess costs they are incurring should be passed on to customers.
Nomura stated that if insurance companies don’t go back to pushing, rather than just offering, investment guarantees, they risk squeezing themselves out of the value chain for contracts such as savings, pensions and pension annuities.
If you are considering an option to a pension annuity, talk to Origen, they can advise you properly on the matter.
