"Subject to agreement from their annuity provider." These were words from the official Budget announcement that told life assurers that the market response to this year's intervention from chancellor George Osborne would not pack the same punch as last year's historic reforms of the UK annuity market.
The pre-announcement that some 5m pensioners will be given the right to sell back their annuity income had sparked questions about how far the policy would affect the embedded value of life assurers - given they spread the profits of sold annuities over the lifetime of the contract. But the more detail, the lesser the blow. From April 2016, the tax rules will be changed to allow annuitants to sell their income to a third party, but crucially subject to agreement from their original provider.
The government has launched a consultation on how such a market will work. But Mark Wood, chief executive of broker JLT's employee benefits division said prior to the Budget statement that such a traded market would be "broadly neutral" for life insurers' embedded value. Under such a model, there is no need to break the original contract and schedule of payments, they will simply be made to a third party. Indeed, this could present an opportunity for insurers to buy such income streams from each other.
The share prices of UK life assurers were a little higher following the announcement. Aviva (AV) and Friends Life Group (FLG) were up by 1 per cent and 1.5 per cent respectively on the day, while the shares of Just Retirement (JRG) - which saw substantial losses last year - were also 1 per cent higher.
The Budget's reduction in the lifetime allowance from £1.25m to £1m is a largely expected, if not major, hit to pension providers, cutting the amount of money coming in from wealthier savers. Effective from April 2018, this will only hit a minority of pension holders, with government figures showing more than 96 per cent of those approaching retirement have a savings pot worth less than £1m.
