Just Retirement and Partnership, two specialist annuity providers listed on the London Stock Exchange, have seen their value fall during trading today, following George Osborne’s announcement that the government would abolish ‘death taxes’ on pensions.
As at the close (29 September), Just Retirement shares had dropped around 7 per cent from 137p to 128p, while Partnership shares fell close to 5 per cent from 110p to 105p. Both set a new year low during the session.
Earlier today (29 September), chancellor George Osborne said that pension funds will no longer be subject to the 55 per cent tax charge when transferred as a lump sum within a pension, regardless of the age of the policyholder.
If death occurs under the age of 75, no tax will apply even if the fund is withdrawn as a lump sum. Over the age of 75 marginal rate taxes will apply on money withdrawn from the fund.
Currently, the tax applies on death to the whole fund if the person is aged over 75 and to the “crystallised fund” if the person is aged under 75.
The move will make it easier for those in drawdown to pass on their pension, prompting several experts, including the government ‘older worker’s champion’ Ros Altmann, to say annuities had been made “even more unattractive”.
Unlike Budget day, when the pension tax overhaul shocked markets and triggered a £4bn sell-off across all life companies with annuities exposure, more diverse providers were largely unaffected by the latest surprise announcement.
At the close yesterday:
• Standard Life shares increased by 0.3 per cent to 416p;
• Aviva was up 0.2 per cent at 533p;
• Prudential was down 0.7 per cent to 1,414p; and
• Legal and General was down 0.2 per cent to 234p.
Partnership declined to comment on the share price, but said simply that the firm believes there is still a market for enhanced annuities.
Steve Groves, chief executive of Partnership, said Mr Osborne’s announcement is “excellent news for the more affluent retirees”, but not necessarily for more mainstream consumers.
He said: “Choosing to go into drawdown in order to preserve a proportion of their pension income as an inheritance could be disastrous for those who live longer than expected.
“We expect to see more people focus on using an annuity to secure a guaranteed minimum income, which would then give them the freedom to use their other assets as they see fit – without gambling their future security.
“Those who choose an enhanced annuity can benefit from up to 40 per cent more income for life compared to those who don’t shop around or take a standard product.
“Longer term, the announcement from the chancellor may encourage wealthier people to save more into their pensions.”
Just Retirement were equally as bullish about the annuity market’s resilience.
In a statement, Rodney Cook, Just Retirement’s chief executive, said: “When the reforms take force in April next year, there will be greater demand for annuities that allow any remaining pension savings to be passed to loved ones when the customer dies, a feature that is already available.
“We are working with HM Treasury to ensure fair treatment for those who have already purchased annuities with these guarantees.
“Independent research continues to show that at retirement the majority of customers want a replacement for their wages in the form of a guaranteed income.
“The changes announced today make annuities even more attractive - not only are they the only solution to provide a guaranteed income for life but now unused pension savings can be passed on free of tax.”
Recent changes announced as part of the consultation on new pensions freedoms gave a boost to annuities by extending the guarantee periods companies are able to offer, and removing the restriction that prevents firms decreasing annual income in a lifetime annuity contract.
