The UK annuity market could decline by up to 75% after the recently announced changes to compulsory annuity purchase comes into effect next year, PricewaterhouseCoopers has claimed.
Following last month's Budget, the firm carried out a poll of 1,208 people aged between 50 and 75 who are looking to take their pension in the near future. Only one in three respondents said they now planned to take out an annuity and of those buying annuities, the survey found that average investments could be reduced to only 50% of their total pension pot.
PwC has estimated that these changes could translate into a 75% fall in the amount of annuity premiums paid out in the UK each year.
The firm's insurance leader Jonathan Howe said: 'It was clear that life insurers were in for a shake-up following the recent annuity announcements, but our survey quantifies the scale of the effect on the life industry.
'People still wanted to invest a small part of their pension pot in an annuity, but it's crucial that insurers offer innovative new products to satisfy their customer demands and to fill the hole left by up to a 75% fall in annuity sales.'
PwC also found that almost two-thirds (63%) of those polled either had asked or intended to ask for financial advice from an independent financial adviser (IFA) on how they would access their pension pot. But half of the respondents said they had a pension pot of under £40,000.
Howe observed that many of those who expect to retire might not have a big enough pension pot to justify significant advice fees, because of the introduction of the Retail Distribution Review (RDR) last year that require IFAs to charge fixed service fees to customers.
He said: 'What we will see is a "blackhole" - a supply gap between what consumers want and what they can get. The government's free guidance will no doubt have its limits and customers will turn to their product providers for help in deciding what to do.'
Respondents said that the certainty of a guaranteed income for life (74%) followed by tax efficiency (60%) were the most important factors in deciding how they would manage their pension pot. However, a simple and understandable product ranked low at 36%, just higher than dependants having security after death, which respondents considered their lowest priority.
'This is a good opportunity for financial institutions to react to customers and to offer new products and services that suits their needs,' Howe continued.
