In a variable annuity, what can affects the returns?

In a variable annuity, the returns are primarily influenced by the performance of the underlying investment options chosen by the policyholder, which often include various equity or stock market investments. Since variable annuities allow policyholders to allocate their premiums among a range of mutual funds or other investment accounts, the performance of these investments directly impacts the annuity's value and the eventual payout.

Equity market performance is critical because if the stocks or funds within the annuity perform well, the returns will increase, thus directly benefitting the annuitant. Conversely, if the equity markets perform poorly, the returns on the variable annuity can decline, reflecting the risks involved in these types of investment vehicles.

While factors like fixed interest rates, changes in government regulations, and inflation rates can potentially influence the broader economic environment and financial markets, they do not directly determine the returns on a variable annuity in the same way that equity market performance does. The design of variable annuities inherently ties their returns to the performance of the equities and other investments selected by the policyholder, making equity market performance the most relevant factor in assessing potential returns.