In a research study titled, “Va Va Voom,” the global consulting firm Oliver Wyman predicts that U.S.-style variable annuities could be as successful among European Baby Boomers as they have been in the U.S. and Japan .According to an article in Financial Advisers, a U.K. weekly publication, the Wyman study said that demographic changes in Europe—population aging and Baby Boomer wealth—would drive the appeal of VAs in Europe.
Wyman reports that in the U.S. , variable annuities have overtaken traditional fixed annuities to become the primary form of tax-protected investment. The Japanese market has seen a similar growth, and is projected to reach $350 billion in assets by 2010.
At least one observer is skeptical of the hype, however. Nigel Callaghan, pensions analyst for Bristol-based Hargreaves Lansdown, said, “There is a myth being created about how popular these are in North America and Japan . They are popular, but largely because of the tax systems in these countries.”
Wyman’s research showed that European Boomers have six specific investment needs and demands: longevity protection, liquidity, flexibility, asset protection, financial advice and general services.
Current European products are becoming less suited to these needs, the report said. Traditional insurance profit-sharing products, for instance, typically have opaque methods of reducing risk and dampening profits. Short-term structured products, for their part, offer little long-term asset protection, longevity insurance, or flexibility.
Wyman expects to see variable annuity assets potentially reaching £32bn, or about $65 billion, in Europe over the next five years, but warns that insurers who market VAs face significant challenges.
