Sales of annuities which offer variable levels of payout depending on how they are invested reached a record £1.42bn in the UK last year, Towers Watson revealed today.
The consultancy's figures show that the value of variable annuity sales increased by 30% in 2012, compared to the £1.09bn recorded in 2011. The final quarter of 2012 saw quarterly sales of the products exceed £400m for the first time.
A variable annuity generally offers a saver guaranteed regular income payments which could increase in value if the assets their savings are invested in perform well. They are currently available from a small number of providers as either a pension or as a life assurance bond.
Mike Williams, a leader in the insurance management consultancy team at Towers Watson, said: 'It is very encouraging that variable annuity sales grew to record levels in 2012, in both premium and policy number terms.
'Further progress will however depend on establishing the virtues of variable annuities with an increasing number of consumers - the variable annuities sold in 2012 were less than 4% of the total number of at-retirement market sales.'
Towers Watson expects the Financial Services Authority's review of the annuities market to lead to more emphasis on alternatives to conventional annuities, such as variable annuities and products where the payout is linked to a saver's medical condition - enhanced annuities.
These alternative retirement products are likely to be appropriate for a 'sizeable segment' of savers, the consultancy said.
Williams added: 'With increasing life expectancy, newly retiring pensioners who are prepared to take a long-term view of their financial options may welcome the combination of potential income growth and guarantees on offer through variable annuities.
'Evolving designs to provide compelling propositions, as well as communicating that there are also risks associated with locking into prevailing market conditions through a one-off annuity purchase at retirement, will be the keys to future market growth.'