Investment backed annuities becoming more popular, fund sales suggest

Demand for investment backed annuities if growing due to concerns over rising inflation and falling conventional annuity rates, according to MGM Advantage.

Sales of its Flexible Income Annuity have driven an overall 14% increase in sales, growing demand for a new breed of investment backed annuity, it says.

The leading retirement income specialist, which 12 months ago launched its own Flexible Income Annuity, says that sales of the product have exceeded expectations and driven a year on year increase in sales of 14% for the mutual society's products in 2010.

MGM Advantage warns that as the cost of living increases there will be even greater strain on household incomes and that this will hit those in retirement hardest. Its analysis reveals that collectively UK households need to find an extra £35 billion to maintain the standard of living enjoyed just 12 months ago.
 
And for households where the main occupants are aged 65 to 74, the corresponding figure is £2.8 billion and where they are aged 75 and over, it is £2.19 billion.
 
It warns that to maintain the same living standards as a year ago, the UK population of 61,792,000 would need to spend an estimated additional £571.85 per person.
 
When it launched its unique investment backed annuity in February 2010, MGM Advantage said it recognised that there was a need for a retirement income product that could hedge against the negative effect of inflation.
 
With a minimum investment of £10,000, it has proved popular with consumers who are willing to accept an element of investment risk on some of their pension savings, providing they have a minimum income guarantee to rely on. It has low annual management charges and a simple range of investment funds to choose from which have made the Flexible Income Annuity attractive to a previously poorly-served group of retirees.

‘There's considerable interest in alternative retirement income solutions that can provide some protection against inflation with the prospect for income growth. Indeed, demand for our award winning Flexible Income Annuity, which offers the potential for investment growth as a natural hedge against the rising cost of living, is soaring as more people recognise the need to mitigate against the impact of both rising inflation and falling annuity rates,’ said Aston Goodey, sales and marketing director, MGM Advantage.

‘The performance of our Flexible Income Annuity demonstrates the potential benefits of having some exposure to investments. Rising inflation could herald the end of conventional annuities which are delivering poor returns and are being surpassed by these more innovative investment backed products,’ he explained.

‘The overall message remains that those nearing retirement should use the open market option to ensure that they search the whole market for the product most suitable to their income requirements,’ he added.

MGM Advantage estimates that over the next five to ten years, £135 billion of pension funds will mature and that a new breed of annuity products such as the Flexible Income Annuity, are needed to ensure that this money provides a better income to people throughout their retirement.