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Annuity Industries In US & UK Are Polar Opposites

There has been a lot of uproar in the UK annuity industry as of late.  While they are scaling back on annuity products and trying to stabilize their industry, the story in the US is completely different.  In the Financial Times article “US and UK divided over annuities,” Kevin White talks about how the countries have had completely different philosophies about annuities over the years.  In the United States, annuity products have only become increasingly popular since traditional pensions went away.  The government has shown strong support of annuities over the past couple of years because they are one of the only ways to combat longevity risk.  On the other hand, annuities have been tremendously popular in the UK and recently had a falling out because of low interest rates and government changes.

The U.S. Treasury started supporting the use of annuities for retirement because too many Americans are not ready financially for their retirement.  The guaranteed income offered by annuities is a good start to help Americans achieve a stream of lifetime income.  Contrary to UK citizens, few Americans have rolled over their 401k retirement savings into an annuity to create a lifetime stream of income.  The annuity industry has innovated many different products in order to garner more attention.  Aside from the more basic immediate annuities, similar to the individual annuities sold in the UK, we now have more types of deferred and variable annuities available.  This innovation has definitely led to increasing attention for the American annuity industry.

William Bowden is a pension specialist and the director of international consultancy at Buck Global Investment Advisors.  When interviewed for this article, he pointed out that the radical changes happening in the UK annuity market are the exact opposite of the increasing openness to annuities in the US.  He said that it’s likely that the US was just too anti-annuity in the past and the UK might have been too pro-annuity.  This caused some tumult in both cases.  An annuity stance somewhere in the middle of what the two countries used to have is probably the best for everyone involved.  The US is making its ways towards the middle, while the UK has to do some changes of its own to get its annuity industry back on track.  The importance of annuities really isn’t in question.  Annuities eliminate longevity risk, so they have an important part in the overall retirement plan of people in the US and the UK.  Everyone involved must ensure that annuities are used for those who need them.  Both industries need some balance.

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