Removing compulsion will not affect annuity sales – experts
Removing compulsory annuitisation at age 75 is unlikely to have a significant effect on the volume of annuity sales, according to an actuarial consultant and an academic.
In a session called Annuities: The Shape of Things to Come, Hamish Wilson, managing director of HamishWilson & Co and professor Ian Tonks, of the University of Bath’s school of management, told delegates at the National Association of Pension Funds conference that the market will not change drastically when the age 75 compulsion is removed.
Mr Tonks presented figures from the Association of British Insurers that showed the size of the compulsory purchase market, estimated to be worth about £12bn, and reviewed the potential effects of the change.
He outlined calculations which demonstrated that the removal of the compulsion to annuitise was unlikely to have a substantial effect on the volume of sales - it was likely to be “relatively small”.
Mr Tonks also commented that rates in the annuity market were likely to rise, as the relatively wealthy would be able to leave the annuity market, opting instead for drawdown.
The poorer members of the population, with a shorter life expectancy, would remain in annuity products.
He explained that there would be other issues for consideration, such as cognitive problems of the elderly in understanding their options, referring to the risk of dementia doubling every five years after the age of 60, and the possibility of mis-selling of financial advice.
Mr Tonks added: “The government said the current FSA rules are sufficiently robust, but I believe it is potentially an issue to be addressed.”
On conclusion of the session, one conference delegate, Tanya Castell, representing the Lloyds Banking Group, said that the issues involved were complex and asked the unanswered question: “Are IFAs up to it?”