What a difference a year makes. There has been a lot of water under the bridge since Chancellor George Osborne took aim and fired at the annuity market, and if the specialist providers’ share prices are anything to go by, there is still a long way to go before sales recover to anything like pre-Budget levels.
But not everyone thinks so. It is in affected providers’ interests to talk up the annuity market, but it is fascinating to hear just how confident (or overconfident) they are. Well, one provider in particular. Partnership chief executive Steve Groves made the bold claim to Money Marketing this week that he believes the annuity market could be set to return to its former glory within the space of two to three years.
So is it realistic to assume the individual annuity market could bounce back from its current lows? Or is Groves simply in denial?
There is evidence to suggest he may not be completely barking up the wrong tree. The current life expectancy in the UK is about 79 years old for men, and 83 years old for women. Clearly, given the expected trends for longevity, there has never been a better time to tout the benefits of a guaranteed income.
And while the twin track of pension freedoms and auto-enrolment are at odds in terms of philosophy (with one school of thought trusting savers with their money and the other defaulting people into pensions because they cannot be trusted), when it comes to annuities the two approaches are actually complementary. With more money flowing into pensions, it stands to reason that more of it may find its way to the annuity providers.
Of course, not everyone is convinced the fortunes of the annuity providers can be turned around again. Groves’ optimism of an annuity resurgence are pitted against those who remain wedded to the view that the market will ultimately contract from £12bn to £4bn by the end of next year.
The truth is no one knows how pension freedoms will shake out. The key will be to see how the annuity market evolves, and we are already seeing signs of innovation in not just drawdown but the fixed-term annuity space.
After the drubbing annuities have had in the past 12 months, advisers will need to ensure clients are not too quick in writing off a guaranteed income just yet.
Natalie Holt is editor of Money Marketing – follow her on Twitter here