Fitch Ratings expects annuity sales in the UK to fall 30-50% compared to the market’s pre-Budget period – and says providers’ business mix will determine their exposure to the decline in annuities.
The message from Fitch comes as the UK’s life insurance sector grapples with annuity and pensions reforms that become effective in April 2015, which effectively mean the removal of compulsory annuitisation.
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Speaking at the Fitch Ratings Insurance Roadshow in London, David Prowse, senior director at Fitch Ratings, cited data from Hymans Robertson showing a majority of defined contribution pension scheme members intend to use their pension pots as mainly cash.
A total of 25% of the respondents said they would use their pension pots for mainly annuities.
Although the UK government’s March 2014 Budget was "bad news" for annuities, Prowse said: "We are not expecting the death of annuities."
He told the audience that providers’ business mix would determine their exposure to the decline in annuities. For example, he said that Just Retirement and Partnership are annuity centric.
However, he said there is the potential for providers to write more business from bulk annuities.
In terms of the for European life insurance sector, Prowse said the key theme is low yields are negative for insurers as this means it is harder to meet investment guarantees and it is more difficult to attract savings customers.
