Budget 2014: Pensions overhaul could spell the end of annuity market, analysts warn

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Plans to overhaul the pensions industry could wipe out the £12 billion annuity market across the UK, City analysts warned today.

Almost £4.5 billion was knocked off the value of Britain’s life insurers yesterday after the Chancellor revealed that savers will no longer be forced to buy an annuity, or income for life, when they retire.

From April next year, pensioners will be handed more freedom on what they can do with their savings pots. They will in effect be able to invest their cash as they wish.

The reform continued to hit shares across the sector today, with Partnership Assurance the biggest faller — down almost 10 per cent to 128p, having lost more than half of its value on Wednesday, less than a year after it listed on the market at 385p.

Analysts at Barclays said: “We believe the UK Budget has the potential to lead to the demise of the UK individual annuity market. Our base case is now that the market could decline by two-thirds from £12bn to £4bn per annum within the next 18 months.

"This is particularly painful for the monoline individual annuity writers, such as Partnership, where the business model is potentially irrevocably damaged.”

Resolution will also be affected by the changes, as will rivals including Legal & General, Aviva and Prudential. Resolution’s shares today fell 6 per cent to 314p as it admitted: “There is a negative implication for new business flows in the individual annuity market, as some people utilise the increased flexibility provided by the Chancellor’s proposals.”