THE UK market for individual annuities will shrink by around three quarters after Government measures freeing retirees from having to buy them come into effect next year, one of the biggest annuity providers has predicted.
Nigel Wilson, chief executive of life insurance and pensions provider Legal & General Group, said he expects the amount of money going into individual annuities to shrink to around £2.8bn a year from £11.9bn, though he did not give forecasts for the group’s own future business mix.
Mr Wilson’s comments at an investor conference in London follow a shakeup of the pensions system announced by Chancellor George Osborne in last week’s Budget.
The reforms, due to be implemented in April next year, effectively scrap a system forcing most retirees to swap their pension savings for an annuity that pays out an income for life, giving them instead a choice in how they invest.
Faced with warnings that savers might blow their cash on luxury items such as Lamborghini sports cars, pensions minister Steve Webb said after the Budget it should be savers’ own choice about how to spend their money.
For annuity providers such as L&G, the move threatens a key business line and shares in L&G - as well as others such as Aviva, Standard Life and Prudential - fell after the reforms were announced.
Aviva has 2,000 staff at York and 1,500 in Sheffield. A spokeswoman said annuities will remain an important option.
Earlier yesterday. L&G said it had won a £3bn bulk annuity contract with the pension fund of chemicals maker ICI, now part of Dutch group Akzo Nobel.