Following the merger of Just Retirement and Partnership announced this morning, what does this move signals for the UK annuity market?
I have no vested interest in either business or any inside information so my comments should be taken as purely speculative and based on my own intuition.
I remember the very early days of Partnership when they were called Pension Annuities Friendly Society or, as I used to call them, the ‘Pathologists’. When someone comes to write the history of annuities in the UK I wonder if Chris Rostron, the founder of PAFS, will be recognised as one of the true pioneers in the impaired life annuity market.
The other pioneer was Mike Fuller who started with Stalwart and then created Just Retirement. I remember back in August 1995 when Stalwart launched the first annuity for smokers and how the PR spread around the world (although this may have been partly due to there being not much news around that summer).
In the good old days, the impaired life annuities market was one dominated by relatively small but innovative companies. Back then, a medical report had to be obtained from a doctor before an annuity quotation could be produced. Thank heavens for the common application form which did away with this requirement in most cases.
Clearly a lot has happened in the last 20 years. As for the next 20 years, I still believe there is a strong case for annuities.
In my paper on the case for annuities earlier this year, I predicted annuities would be used in a more sophisticated way now that everybody can take advantage of the new pension freedoms.
But exactly what does this greater sophistication look like? The answer may help us forecast how the combined business of Just Retirement and Partnership might develop.
The first level of sophistication is at the advice and product level. Many advisers and their clients are waking up to the brutal reality that although drawdown provides total flexibility, most people need a good deal of certainty. So rather than being faced with a black and white choice between an annuity and drawdown, it might be better to have a combination. The future looks like blended solutions to me.
The next level of sophistication lies in the underwriting. I am a simple consultant and marketing man so I do not pretend to understand what happens in the black box of underwriting. But I do know many of my clients who bought enhanced annuities 10 or more years ago are still alive and very glad they made the purchase. The advances in medical research suggest underwriters must continue to examine the impact of new medical treatments on life expectancy so they are ahead of the curve and do not get caught out by ever-increasing life expectancy.
Another level of sophistication is in the bulk annuity market, and this is one area where a larger enhanced business can compete with the established bulk annuity providers.
In another 20 years’ time (when I will probably qualify for an enhanced annuity), the landscape could be very different.
Will I look back and recall that 2015 was the year that two of the pioneers in the enhanced annuity market joined forces and spearheaded a new generation of post-pension freedom annuity products? Or will the annuity market have changed so much that Just Retirement and Partnership will simply be remembered as casualties of the new freedoms?
I hope they will continue to innovate because it what advisers and their clients need.
Billy Burrows is director of Retirement Intelligence