The annuities industry has been reassured that defined contribution changes announced in this weeks Budget will not result in the death of the annuities market
Delivering a statement at the House of Commons yesterday, pensions minister Steve Webb said many people would still choose to have an income for life rather than a capital sum, 'so we do not think this is the death of the annuity'.
He said: 'We think it will give a bit of a jolt to the annuity market and make providers do better.
'Providers are realising that this is an opportunity. They will have to up their game, but this is a chance for them to provide new and innovative products and we are happy to work with them on that.'
The minister said the pension reforms represented a 'radical liberalisation' of the retirement savings market. He said the government would now treat people like adults, giving them greater flexibility to choose how best to use their savings.
'People will still be free to take a tax-free lump sum and turn the balance of their pension pot into an annuity, providing a guaranteed income for life, but they will also be able to withdraw the whole of their pension pot as cash to spend as they see fit, subject only to taxation on the balance in excess of the tax-free lump sum,' said Webb.
'To support people in making good choices we will introduce a guidance guaranteea legal requirement on pension schemes to offer all scheme members a conversation about their options with someone who is impartial.'
Next week, the Department for Works and Pensions will publish measures to deliver this policy. 'We need to make sure that these pension savings are invested in value-for-money schemes that are well governed,' Webb said.
But, Ed Wilson pensions director at PricewaterhouseCoopers said there would be a 'profound impact on annuity providers', leaving them with little time to provide attractive new products.
He told The Actuary: 'I think there is a real challenge for insurance providers and the existing people in the market. They are going to have to respond and [will have] to innovate to create products that continue to interest people.
'And we have a relatively short timeframe. Those are big challenges, but offsetting it you could have the best retirement situation in the world but if people are not being engaged, interested and saving up until that point, that is still no good.'
There were also other risks, he said - individuals could make bad decisions and spend all their money and raised the concern of how free guidance would work in practice and who would pay for it.
Wilson went on: 'On the balance of risks, my views are positive. The end environment encourages more employee saving, which will outweigh the risks of people making bad decisions. There is [definitely] a trade off going on between flexibility and freedom for people versus risks that giving people responsibility when they are not in a good place to use it.'