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Analysts predict ‘demise of individual annuity market’

Analysts at Barclays predict Chancellor George Osborne’s “pensions bombshell” will see the individual annuity market contract by two-thirds in the space of 18 months.

In the Budget, Osborne revealed a radical shake-up of pension rules which will mean that from April 2015 anyone over the age of 55 will be able to take their entire pension pot as cash.

Barclays analysts say: “We believe the Budget has the potential to lead to the demise of the UK individual annuity market.

“Our base case is now that the individual annuity market could decline by two-thirds from £12bn to £4bn per annum within the next 18 months.” 

Analysts say the business model for companies focused on individual annuity business has been “potentially irrevocably damaged”.

Noting the 55 per cent fall in Partnership’s share price on the day of the Budget, the analysts say: “The Budget has severe ramifications on the business model of Partnership, which is particularly acute given new business accounts for nearly 80 per cent of its profitability in any one year, and individual annuity sales account for 90 per cent of total sales.”

In a statement, Partnership says: “We believe annuities remain an important part of retirement planning.

“We welcome proposals to ensure all consumers receive free guidance at retirement, which could significantly increase the number of people who shop around and decide to purchase a non-standard annuity.”

Derbyshire Booth managing director Greg Heath says: “This is not the death knell for annuities, as there is still no other product providing the same belt and braces security.

“But there is no doubt that providers will have to re-invent their business models as there is no longer a captive market for them.”

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