Bulk annuities remain a good option for pension schemes despite the changes to the market set out in the Budget last week, Aon Hewitt said today.
While the announcement on annuities had 'rocked the pensions' world', Aon said they were unlikely to have a material effect on the protection offered by bulk annuities to policyholders.
Dominic Grimley, principal consultant at Aon Hewitt, said: 'Our view is that changes outlined in the Budget will not have a material impact on the security available to bulk annuity policyholders (current or prospective) given the regulatory protections that exist.
'Depending on how insurers will presumably alter their business model - in light of a reduced demand for individual annuities - their appetite for bulk annuities may well increase, which would be positive for the competitiveness of this market.'
The amount of capital held by insurance companies has not changed, Aon Hewitt stated, adding that insurers have ring-fenced capital reserves for annuities. The consultants also said that, in the very short term, a fall in the scope for new business could be beneficial to policyholders, as less capital would be needed for allocation to new policies should individual annuity business reduce.
Grimley continued: 'Even if owners of an insurance company made the extreme decision to stop offering annuities, policyholders remain subject to the substantial protections of the regulatory regime, and cannot be disadvantaged if the annuity promises are ultimately passed to another insurance company which has a stronger ongoing focus on annuities.'
He added that the Budget changes were more likely to pose questions for management and investors in insurance businesses than for defined benefit pension schemes looking to de-risk.
