Prudential pulls out of annuities open market

Added 21st June 2016

UK insurer Prudential will no longer sell annuities on the open market through advisers, a move which coincides with the end of a consultation into the government’s plans to implement a secondary annuities market.

Prudential pulls out of annuities open market

In a statement on Friday, a spokesperson for Prudential said: “We can confirm that we propose to make a change to conventional annuity business written with financial advisers.

“As a result of this change, from 17 June 2016, we will no longer accept applications for new external conventional annuity business only from financial advisers."

The firm added that it will continue to provide access to annuities for financial advisers with existing Prudential pension clients, and for advisers’ clients holding Prudential annuity income and rate guarantees.

Asset backed annuity business will also continue to be accepted on a standard and enhanced basis from financial advisers.

Annuity market turmoil

The moves comes during a difficult time for the annuity market in the UK following chancellor George Osborne’s pension reforms, introduced last year, which scrapped the need for people to buy an annuity.

"More and more investors may end up bypassing the shopping around process and simply buying an income from their existing provider."

As a result, UK annuity sales plunged 42% from £11.9bn in 2013 to £6.9bn in 2014.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said the number of annuity providers on the open market is falling – with only 10 providers now remaining in the market.

These are Aegon, Aviva, Canada Life, Hodge Lifetime, Just Retirement, Legal & General, LV, Retirement Advantage, Scottish Widows, Standard Life.

He also warned of the dangers of declining competition after a recent survey, conducted by the Citizen’s Advice Bureau, found that seven in 10 people who have accessed their pension since the freedoms didn’t shop around for different products.

“Our worry now is that with fewer annuity providers available on the market, more and more investors may end up bypassing the shopping around process and simply buying an income from their existing provider.

“Since the launch of pension freedom, more and more investors are arranging their income directly with pension providers, usually without taking advice. It is imperative therefore that everything possible is done to help them find the best possible deal,” said McPhail.

Bounce back

However, McPhail added that demand for annuities has now stabilised and has even started rising again in recent months.

Research published in March by the Association of British Insurers (ABI), found that annuities are beginning to bounce back after their post-freedom fall and are now almost on par with drawdown sales.

The data based on the last quarter of 2015, found that £3.3bn has been invested in around 61,700 annuities in the UK – compared with £4.2bn invested in 63,400 income drawdown products.

Secondary annuity market

It also coincides with the closing of a consultation period, led by the Financial Conduct Authority (FCA), which looked at how to protect consumers in the secondary annuity market

In a consultation paper published in April, the regulator laid out rules and regulations for its planned secondary annuities market which will allow holders to sell their scheme back to a provider or onsell the income stream to an FCA-authorised buyer.

Dutch-headquartered insurer Aegon has called for full clarity for financial advisers on the standards the FCA expects for what it describes as this “brand new and high risk market”, warning that a failure to provide this could mean advisers may shun the market for fear of standards being applied "with the benefit of hindsight".

Aegon’s pensions director Steven Cameron, said: “Providing risk warnings at an early stage may help customers decide if assignment might be worth considering. These need to reflect the different risks between assigning for a lump sum and ‘swapping’ an annuity for flexi-access drawdown.

"Arguably, the lump sum option is riskier as unlike flexi-access drawdown, there is no mechanism for planning a sustainable ongoing income and it could push the individual into a higher tax band.”

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Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.

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