PensionsJul 18 2014

Reliance Mutual exits open market annuities

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Reliance Mutual will stop offering enhanced annuity products on the open market from 25 July following at-retirement flexibility announced in the Budget.

Mark Goodale, Reliance Mutual chief executive, told FTAdviser that after a review of annuity strategy it was decided that as a membership organisation, staying in the market was not in the best interest of members.

Chancellor George Osborne rocked the annuities market in this year’s Budget by announcing that “no one will have to buy an annuity” among other sweeping changes to the way retirees can draw an income from their pension pot.

Immediately after the Budget, the value of listed annuity providers plummeted.

Since then, there has been wide speculation as to how much the annuity market will shrink.

Analysts at RBC Capital Markets predicted this market would shrink 90 per cent following Mr Osborne’s announcement. Barclays called the announcement a “game changer” that had “the potential to lead to the demise of the UK individual annuity market”.

It forecast that the value of new individual annuity business would shrink from £12bn a year to £4bn by 2015.

In April, MGM Advantage announced that it will be making 80 redundancies and will be launching a “radical new proposition” after admitting it “would be madness” to ignore the radical pension changes announced in the Budget.

Mr Goodale said: “With what’s going on in the annuity market there’s very high capital requirements under the current regime and obviously significant changes going on in the market.”

Existing members that are a part of the firm’s large personal pensions business will continue to have an annuity option made available upon retirement, but enhanced annuities will no longer be sold on platforms, Mr Goodale added.

He said: “Our whole business is not reliant on this, but it’s probably different for those which have annuities as their whole business, they might need to push a little harder.

“The Budget is a catalyst, but there are broader issues about member interests in terms of the amount of capital you invest in these products.

“It’s a different decision from wanting to attract new customers in a capital hungry product at a time when I’m not sure what the customer behaviour is going to be in the future. I’ve heard in the marketplace that annuity sales are down dramatically, so it’s a tough market and it really depends on what you’re strategy is.”