Insurance sector hammered by annuity shock
LIFE insurers were the biggest losers yesterday after radical plans to give ageing savers instant access to their pension pots sparked a mass insurance sell-off.
FTSE 250-listed Just Retirement and Partnership Assurance were the hardest hit, with both losing close to half their market value. Just Retirement closed down 42.4 per cent while Partnership fell 55.2 per cent.
The government is proposing to scrap compulsory annuities – which convert pension pots into an annual retirement salary – to give savers instant access to their savings as a lump sum.
Traders wiped about £1.4bn off Just Retirement and Partnership in just two hours after the plans were unveiled, due to concerns savers will no longer buy annuities.
Both firms attempted to put a brave face on the wipeout yesterday.
“Annuitisation has not been mandatory for several years,” Just Retirement boss Rodney Cook said, adding that annuities represented “good value”.
Partnership said: “Consumers continue to choose them to unlock the value of their pension pots.”
Other insurers feeling the brunt of traders’ concerns yesterday included Legal & General, which fell 8.4 per cent, and Aviva, which fell 5.1 per cent.
One insurance industry source said the government’s move was a “populist” attempt to curry favour with voters. “This seems to be the longest run up to a general election ever.”
Canaccord Genuity analyst Barrie Cornes said: “Whilst we think that there will be a reduction in the number of people buying an annuity, there will still be demand for the product, particularly given the increasing longevity of the population.”
Schroders fund manager Jessica Ground added: “The announcement about annuities did come as a big shock to the market.”
Schroders’ share price rose 1.59 per cent, alongside peers Aberdeen Asset Management and St James’s Place, up 0.49 per cent and 4.28 per cent respectively in anticipation of a retail investing boom following the rule change.
PENSIONS CHANGES: EVERYTHING YOU NEED TO KNOW
FROM APRIL 2015 ONWARDS
400,000 people will be able to take advantage of the changes when they take effect.
The chancellor has promised to scrap compulsory annuities, giving pensioners the freedom to use their savings as they wish.
Currently, a defined contribution pension holder will be charged 55 per cent tax if they withdraw their whole pot, but from April next year they will only pay their marginal rate of tax, either 0 per cent, 20 per cent, 40 per cent or 45 per cent.
TRANSITION FROM 27 MARCH
A new guarantee will mean all defined contribution pension holders will be offered free face-to-face advice
The amount savers can take as a lump sum on retirement will rise from £18,000 to £30,000.
The amount of guaranteed income people need in retirement to qualify for extra flexibility will fall from £20,000 to £12,000.
The lump sum permitted to be withdrawn will rise from £2,000 to £10,000 and the capped drawdown limit will rise from 120 per cent to 150 per cent.
Savers will be allowed to take three, instead of two, pension pots under £10,000 as a lump sum.
The changes will not apply to public sector defined benefit plans.