Updated: June 27, 2019

Variable Annuity

Looking for an annuity plan that gives you the freedom to invest your funds elsewhere? Read up on variable annuities in this guide to find out if this is the solution for you

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: June 27, 2019

Not all annuities comes with a fixed rates. There are variable annuities too, and this guide will help you decided whether this variation of the product is the right choice for your retirement needs and personal circumstances.

You’ll find the following topics covered below…

What is a variable annuity?

It’s essentially a tax-deferred retirement scheme that gives you the freedom to invest.

Variable annuities explained

A variable annuity policy combines some of the characteristics of a fixed annuity with the benefits of being able to invest (typically mutual funds) in stocks and bonds.

You’ll then receive a retirement income based on how well those investments do, so it is not without risk. By contrast, a fixed annuity will provide a guaranteed income, but it may be lower than a variable annuity fund that does well.

If you’d like variable annuities explained in more detail, you can arrange a free, no-obligation chat with one of the variables annuities experts we work with by making an online enquiry.

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The advantages and disadvantages

Like with any retirement scheme, a variable annuity has its advantages and disadvantages.

Where it differs from a fixed annuity, is that your money is invested and your retirement income is directly related to how well these investments do.

So while your investments (and hence your pension pot) may increase, they can also fall in value. So there is that when it comes to variable annuities, risk is something to consider.

See below for more variable annuity pros and cons.

Fees and charges

Most variable annuity policies in the UK charge fees, which can eat into your potential income in the accumulation stage. You’ll need to take into account these fees and charges when looking for the best variable annuities.

Annual admin fees can add up and you may have to pay a fee if you withdraw cash before the agreed period.

Fees may also be payable if your variable annuity policy includes a death benefit and you could be charged up to 10% as an early withdrawal penalty.

If you’re at all unsure, talk to one of the expert pensions advisors we work with for the right advice on fees and charges.

You can arrange a free consultation by making an enquiry with us.


Any money you take out will be taxed as ordinary income, not as capital gains. This means that the income you earn from your variable annuity will be added to any other earnings you have in retirement, including your state pension, and taxed based on the total amount you’re bringing in each month.

We would recommend talking to an experienced tax advisor if you have questions about the exact amount of tax you can expect to pay on a variable annuity.


They say nothing is certain except death and taxes, and when it comes to variable annuities, one of the drawbacks is that if you pass away sooner than expected, then the provider keeps the principal balance.

So, if you are of an advanced age or in poor health, you might like to reconsider an immediate variable annuity.

Variable annuity death benefits can include a clause whereby a second person can be added to the annuity or a guarantee that payments are made for an agreed period.

There will, of course, be additional charges and fees to be added to the policy to provide for these additional services. If a joint annuity with a beneficiary is of interest to you, read our article on joint annuities.

How does an immediate variable annuity differ?

An immediate variable annuity, also known as a single premium immediate annuity, is an option If you have a large amount of cash on hand. This could be savings, an insurance payout, an inheritance or another windfall. You can put it into a variable immediate annuity as a lump sum, and you’ll then receive income payments immediately.

These payments continue for the life of the holder, but be aware that the amounts may fluctuate, depending on how well the financial market is doing.

How do I get the best variable annuity rates?

Given that rates can vary from one provider to another, not to mention the fact they can also differ depending on your personal circumstances, the best way to get the most favourable interest rates is to compare the market in search of the provider offering the most competitive deals. But there’s no need to do the legwork yourself…

What is the best way to carry out a variable annuity comparison?

The best way is to make an enquiry and have one of the independent pensions advisors do all of the hard work for you.

They have access to the entire market, so you can rest assured that you will end up with the best variable annuity deal for your needs and circumstances.

Can I get a guaranteed variable annuity?

No. The very nature of a variable annuity is its flexibility and potential to provide a higher retirement income. This does, however, come with risks as your investments can just as easily go down, as well as up.

If you are ‘risk averse’ and would prefer the peace of mind that comes with a fixed income, then a fixed annuity may be a better option for you.

This means you’ll be on a fixed income for the rest of your life. The downside is if inflation increases dramatically, you could find yourself struggling financially. The upside is that a fixed annuity usually starts with a higher income than one that offers increasing annuities.

Speak with an expert

Because there are so many options and factors to consider, it’s important that you get the right advice from a specialist in annuities.

The pensions advisors we work with are experts when it comes to variable annuities and can help you understand what you could expect from your retirement variable annuity.

For advice on how to get the best financial outcome for your circumstances, call us on 0808 189 0463 or make an enquiry. We’ll arrange for one of the experts we work with to get in touch.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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