Shares in life assurance companies responded badly to news that the Chancellor of the Exchequer had effectively scrapped the compulsory purchase of annuities by those with a defined contribution pension.
Predictably, annuity specialists suffered significantly - Just Retirement (JRG), for instance, saw its shares tumble 29 per cent by the close of play on Wednesday. But larger and broader-based life players were also hit - Legal & General's (LGEN) shares fell 8 per cent, while Aviva's (AV.) and Prudential's (PRU) dropped 4 per cent and 2 per cent, respectively. Meanwhile, hardest hit of all was Partnership Assurance (PA.), whose shares more than halved in value during the hours after the Budget. The enhanced annuity provider - which means it provides specialist annuities for pensioners with specific lifestyles or compromised health - was already under pressure following underwhelming results on the morning of the Budget.
But this could yet prove to be a short-lived knee-jerk response. To begin with, the rates available from annuities mean that they're likely to remain an attractive and dependable retirement product. "There just aren't that many other places where you can get those kind of rates," points out insurance analyst Barrie Cornes of broker Panmure Gordon. And while he thinks it's possible that demand for annuities could conceivably fall among those who only had a relatively small pension pot to begin with - they may chose to simply draw down their funds - he's convinced that, overall, "the annuity isn't dead".
For the larger, more diversified financial services businesses, weaker demand for one product may simply be mitigated by stronger demand elsewhere. But for narrow focus annuity providers, there is considerable uncertainty right now.
