The decisions made surrounding financial security and stability during retirement are some of the most important decisions to be made in one’s lifetime. For this reason, it is crucial that consumers and those coming up on retirement spend sufficient time and energy researching the options available for their retirement. For most, this means investing in some kind of annuity. However, choosing the right annuity can often take a great deal of time, effort, and research. However, the decision is well worth it, given that the investments made today will have a great impact on the retirement years to come after working years have expired. The decision made on annuities and other investment strategies will have a lasting effect and impact, potentially for the rest of the life of the investor.

For many retirees, the idea that an annuity will be purchased is a given. However, it is often the decision as to what kind of annuity to purchase that requires the most thought and research. There are several advantages and disadvantages to purchasing a Variable Annuity. For those looking to invest, it is crucial to look in to each and every one of the pros and cons in this investment strategy, as it can have a lasting impact on years to come, especially the retirement years.

Advantages to purchasing a variable annuity:
1. There is a level of certainty because there is a guarantee of a fixed level of income/lump sum/death benefit.
2. There is the potential to increase income through investment growth.
3. There is a way to guarantee investment growth without risking the fund value if the markets were to fall.
4. There is a certain level of flexibility if the investor wants to change requirements sometime in the future of the investment.
5. A variable annuity eliminates the commitment of “once in a lifetime” which is often associated with the purchase of a conventional annuity.

Disadvantages to purchasing a variable annuity:
1. There are explicit costs associated with guarantees
2. There may be an “opportunity cost” incurred if the full value of the investment growth is not achieved.
3. Early surrender values and charges can be prohibitive.
4. Variable annuities are very new to the UK market and therefore, their design is new and unique.
5. The income may be reduced in the future if the required hurdle rates are not achieved.