The UK individual annuity market has declined sharply following new pension flexibilities announced by the government in March 2014, says a Timetric report, Annuities Insurance in the UK, Key Trends and Opportunities to 2018, which is available at the Insurance Intelligence Center (IIC).
According to the IIC report, the value of individual annuity new business premiums plunged 43.2%, from £12.4bn in 2013 to £7bn in 2014.
The decline in annuities stems back to the 2014 UK Budget, meaning people aged 55 and over would have more flexibility about when and how to draw their defined contribution pension savings – subject to their marginal rate of income tax – and no one would have to buy an annuity.
In the March 2015 Budget, UK Chancellor George Osborne built on the radical pension reform announced in the previous year’s Budget by proposing that from April 2016 people who already have an annuity will be able to effectively sell it on.
Currently, consumers who already have an annuity are unable to sell it without having to pay at least 55% tax on it.
Commenting on the impact of the pensions reform on the UK annuities market, Vanessa Owen, head of retirement proposition at LV= tells Life Insurance International that annuity volumes are down about 50% across the industry compared to the pre-Budget period.
Despite this challenging backdrop, according to Owen, LV= is noticing additional interest is in fixed term annuities.
She comments: "We are one of the few players in that space and volumes there exciting. It’s a small market, [fixed term annuities] but clearly there is potential to grow there. What I understand is happening is that people are looking splitting their money.
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Partnership, a provider of enhanced annuities, and Just Retirement, had been cited by Fitch Ratings as standing to suffer from the Budget changes as the ratings agency has said that annuities account for a much higher percentage of Partnership and Just Retirement’s earnings than other major providers in the UK, such as Aviva and Prudential.
However, Mark Stopard, head of product development at Partnership, since the Budget the provider has seen a "pretty steady uptick in activity" in terms of a lot more enquiries and illustration and quotation activity.
"Obviously, hopefully some of that will feed through into a pickup of business as well," says Stopard.
He says Partnership was not surprised by the increase in enquiries for its annuity products since the Budget although it may "have been a surprise to some people".
Stopard said: "We were very conscious that a lot of people were deferring their decision until they had a wider range of options.
"We expect guaranteed income for life solutions to remain a reasonably core part of people’s retirement planning, but maybe the way they buy them will start to change."