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Insurers warn switchable annuity plan will hit infrastructure investment

Insurers have warned pensions minister Steve Webb’s proposal to allow savers to switch annuity providers would force them to cut back investments in long-term infrastructure projects.

In an interview with The Sunday Telegraph, Webb suggested people should be able to ditch their annuity provider if they are unhappy with their existing deal.

Experts say the move could force rates down by 25 per cent overnight, while one industry insider warned the frictional costs involved in an annuity transfer mean most people would lose out if they switched providers.

Insurers have now raised concerns that allowing people to change annuity provider would force them to stop investing members’ money directly in infrastructure projects.

Legal & General pensions strategy director Adrian Boulding says: “Legal & General has invested in a large number of projects which not only give a better return than gilts but actually do something for the community.

“This year already we have invested in a string of Methodist nursing homes, we have invested £89m in the Royal Liverpool hospital and we invested another £150m into Unite student accommodation.

“That is using customer money to invest in things that are really worthwhile for the nation. But we are only able to make these sorts of investments because they are very long-term and the money we manage is non-surrenderable.

“These are not market quoted investments, they are direct deals that we have done with the organisations involved. If we went down the road of saying annuities are surrenderable then we wouldn’t be able to invest in these long-term projects that are rebuilding the fabric of our country.”

A senior industry source adds: “If you have invested in infrastructure, that is not a liquid asset. If you have bought the M5 you cannot sell that overnight – you would have to unitise the investment and find another buyer, which is not an easy process.

“Allowing people to switch annuity provider would be hugely problematic if you have invested in illiquid long-term assets. The same issue could apply to corporate bonds in a difficult market.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “There would be all sorts of unintended consequences if the Government made annuities switchable. I cannot see this idea getting off the ground.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. You have got to admire the spin these guys put out there. Antone would think that they were in it for altruisitc reasons. Well when i say anyone i mean they have pulled the wool over Steve Webb’s eyes

  2. Adrian makes a very valid point

    My hope is that with all the focus on annuities everybody wakes up to the reality that annuities are a serious and long term business.

    I have always thought the answer is not to put all of the annuity eggs in one basket – perhaps it makes sense to invest part into a guaranteed annuity and part into a flexible / investment linked option.

    My critics say that most people’s pension pots are not bigger enough but I see enough people with above average size pension pots to know that middle Britain needs better solutions.

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