Partnership managing director of retirement Andrew Megson says the City “got it wrong” after the insurer’s share price plummeted over 50 per cent on the back of radical pension reforms announced during the Budget.
Last week, Chancellor George Osborne shocked the pensions industry when he revealed plans to fundamentally overhaul the UK savings system. The reforms mean that anyone aged 55 or over will be able to take their entire pension pot as cash from April next year.
Osborne’s bombshell announcement sparked a mass sell-off of shares in FTSE100 insurance companies. Partnership, which specialises in enhanced annuities, has seen its share price drop from over 280p per share before the announcement on Wednesday to just 125p per share this morning.
Megson says while the company is expecting a drop in the percentage of people who buy annuities, he also expects the overall size of the market to grow.
He says: “Whenever you get a surprise announcement like this you get a huge overreaction. But fundamentally if it was right for an adviser to advise his or her customer to take out an enhanced annuity product last Monday, we cannot see what has changed by this Monday except for the triviality rules.
“There is obviously going to be a short-term dislocation in the market as there always is with an announcement like this. As this bombshell dropped anybody who could read a paper was picking up the consumer facing press and saw complete freedom with no risk.
“Do we think the City have got it wrong? Absolutely and we are having conversations with analysts over the next few days. Clearly this came out of the blue and it was a shock to everyone, including the market.
“It will take some time to right that but our fundamental business is sound and we will just carry on.”
Megson suggests the experience of the US and Australia – where savers have more freedom over how they spend their pension pots and the annuity market is relatively small – is unlikely to be replicated in the UK.
He says: “People have been comparing the UK with the US and Australia but neither of those markets have had compulsory annuitisation.
“The concept of annuities is alien to those countries and so, while annuities are available, they have never really taken hold.
“Both Australian and US governments are distinctly concerned with customers running out of money. In fact, 35 per cent of people in retirement in the US run out of money.
“We think Switzerland is a better model to compare to. Compulsory annuitisation was in place there and accepted by the population. It was subsequently removed and now 80 per cent of people reaching retirement purchase an annuity by choice.
“We think that is quite a strong analogy.”