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MM leader: Is Partnership in denial about the state of the annuity market?

Natalie Holt Peach 250x255

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

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Annuities are dead or almost and the market will inevitably contract. Anyone other views are just wishful thinking and fly in the face of reality. For too long the industry has been disfunctional and now it will have to work very hard to scrabble amongst the minority of people who will take it up. No doubt some pensioners will run out of cash but human nature will cast all doubts aside.

  2. The market will contract, but annuities aren’t dead. They serve a purpose, but bearing in mind that products like AEgon’s 5 for life (which are an old product I accept) offered better terms for a guaranteed lifetime income of 5% of initial capital than purchased life annuities with your capital value available to draw on, annuities will sometimes be best and sometimes not. On occasions we used PLAs to simply secure enough income for a client to qualify for flexible drawdown when their existing secure income was a matter of £1,000 a year or so short of the £20k then required (or even the £12k currently required).
    #What I think we will increasingly (I hope) see is underwriting of lifetime income being an add on to a contract as mortality cross subsidy for a similar annuity pool protects against the unexpected and aids planning for the unplanned so you can plan better for the probable outcome (I think I understand what I just wrote 🙂 )

  3. Can we please disseminate the right figures for life expectancy as advisers picking up your figures will miss-advise. You want life expectancy of 65 year olds or whatever age you are advising – which is c84. Overall UK life expectancy is affected by infant mortality, teenagers in RTAs etc. This is also an average, so 50% of people will live well beyond it. An annuity protects against this.

  4. Annuities will remain a critical option for all retirees …at some point, but no always “at retirement”. The certainty of income will become a godsend when, and not if, equity markets suffer their next major market correction. What price peace of mind in an uncertain world? Can advisers, or their clients, afford to run with those risks AND longevity risk of income assets expiring before the client does!

    Remember also that annuity market for Partnership is not solely centred on pensions. Partnership are building a thriving book of Immediate Care Plans + derisked DB scheme deals.

  5. To Dave Young.

    The data you require can be accessed via Office National Statistics. [ ONS]
    Go to Disability Life Expectancy Estimates, [ DFLE] It shows male life expectancy at aged 65 at 18 years and up 2.1 years on previous table. For females its 20.7 years, up 1.6 years.
    As a male in my 60,s I like these stats!

  6. @Peter Fisher – as a male at 50, while I like the stats, I need to measure them against life quality at the different ages too though 🙂 Extreme sports later in life could become more and more attractive rather than those I did when I was younger.

  7. The improved death benefits of value protection will be a boon for the impaired/enhanced market.

  8. I agree annuities are down but far from out. They serve a particular unique market and now the restrictions are removed the product needs to evolve with better death benefits etc. If that happens then the annuity will be back but never to pre budget levels.

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