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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 a recent interview with The Sunday Telegraph, Webb suggested people should be able to ditch their annuity provider if they are unhappy with their existing deal. But experts said the move could force rates down by 25 per cent overnight.

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: “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.

“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.

“If we went down the road of saying annuities are surrenderable then we would not 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.”

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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