21 Sep Insurance Giant Considers Ending Annuity Sales in UK After Pension Reform Hurts Demand
The Dutch insurer, Aegon, is debating whether or not to continue selling fixed annuities, and all other types, in the United Kingdoms after reform in the British pension system has led to a decrease of sales by about 50%, according to Reuters.com. The international news agency was able to get its hands on an internal memo from Aegon UK chief executive, Adrian Grace.
“As part of our on-going review of our portfolio of businesses, and our focus on drawdown and guaranteed products, we have initiated a review of our annuity portfolio in the UK,” Grace said in the memo. “We have clear differentiation in our proposition ‘to and through’ retirement and this is supported by innovative products such as Secure Retirement Income which is the only guaranteed product available on platform today. We will continue to grow our platform both organically and through acquisition.”
The writing was on the wall for annuity popularity in the post-reform UK pension world when industry specialists Just Retirement and Partnership Assurance agreed to merge last month. Sky News also reported that Aegon has enlisted the services of investment bank Citi to oversee a possible sale of the annuity assets which could provide “substantial proceeds” for the insurance company. Shares of Aegon stock have dropped by 20% since last month.
The flexibility and overall freedom of the new UK pension system allows people to have greater control over how and when they receive their money. One of the things they offer is traditional and flexible annuities. These flexible options are similar to life insurance annuities, with various options to choose from including ones that payout over a period of time, like 10 or 20 years, or continue as long as your spouse is alive. You can get cash for annuity now by purchasing “immediate” annuities which usually start payments after 30 days.
One of the reasons people like to sell annuity payments in general is because of the various fees and penalties. Annual maintenance fees can be 3% in many cases. A lot of people believe you’re better off getting cash for your settlements and annuities and using the money how you see fit.
In the end the market, by way of people’s choices, will decide if annuities from private companies will still be a worthwhile investment option. For now, the recent mergers and takeovers of such businesses is enough to scare even one of the biggest corporations in the field.