The proposed merger between Just Retirement and Partnership will be bad news for savers if annuity pricing competition is diminished, advisers warn.
Earlier today, the two firms confirmed a deal had been agreed between the respective boards which will see Just Retirement chief executive Rodney Cook lead the combined business.
Partnership chief executive Steve Groves will leave the firm on completion of the merger.
Just Retirement shareholders will own roughly 60 per cent of the combined business, with Partnership shareholders controlling the remaining 40 per cent.
Just Retirement says the deal will eventually result in annual savings of at least £40m – approximately one-third of the combined cost base of the two firms. Part of this saving will come from “the removal of duplicate quotes, sales and pricing activity for annuities”.
Rowley Turton director Scott Gallacher says the merger could ultimately see savers getting poorer value for money from the annuity market.
He says: “I can see the business argument for merging but any removal of competition is not good for consumers.
“Just Retirement and Partnership were among the most aggressive in the market in terms of being willing to trim their profits in order to win business. It is still a strong market but losing that competitiveness will inevitably have an impact on enhanced rates.”
Threesixty managing director Phil Young adds: “It’s ironic that a government change based on a ‘freedom and choice’ agenda has narrowed this market considerably, with little new appearing in its place.
“Plenty of advisers have played Partnership and Just Retirement off against one another to improve premiums over the years so that option will go. It leaves space for new entrants but the question remains whether this is an attractive enough market for new investment.”
Retirement Intelligence director Billy Burrows agrees savers could get a worse deal following the merger.
He says: “This might not be good news for advisers and their clients because the healthy competition between Just Retirement and Partnership produced higher annuity incomes.
“However, the benefits of the merger should result in more innovation and a longer term commitment to the annuity market.”
Dalbeath Financial Planning director Matthew Harris adds: “It’s a shame to see a reduction in the number of competitors in this market, but it’s understandable given the fall in demand for annuities.”
Both Just Retirement and Partnership relied heavily on enhanced annuity business prior to the 2014 Budget. Chancellor George Osborne’s declaration that “no one will have to buy an annuity” had a devastating impact on each firm’s share price, with savers less inclined in the short-term to lock-in to a retirement income for life.
Despite this, Hargreaves Lansdown head of pensions research Tom McPhail insists the deal does not represent “the death of annuities”.
He says: “Investors still show a strong appetite for a secure retirement income for at least some of their pension pot and for those that do shop around on the open market, enhanced annuities now make up over 75 per cent of all transactions.
“The two companies’ combined share currently makes up over 40 per cent of the open market annuity business.”
McPhail also points to the extra security the deal will provide for those who have already bought an annuity with Just Retirement or Partnership.
He says: “For existing annuity investors, this deal is likely to help dispel any concerns or uncertainty they may have had over the future of their annuity provider and the security of their retirement income.”