Specialist annuity providers Just Retirement and Partnership could benefit from the second raft of pension changes announced last week, analysts at Deutsche Bank have said, despite the two firms recording sharp falls in share value in the wake of the announcements last week.
Last Monday (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.
As a consequence, specialist annuity providers Just Retirement and Partnership, who are listed on the London Stock Exchange, saw their shares drop by 7 per cent and 5 per cent respectively. Both set a new year low during the session.
The chancellor’s move prompted several experts, including the government ‘older worker’s champion’ Ros Altmann, to say annuities had been made “even more unattractive”.
However, a Deutsche Bank equity research note on Just Retirement dismissed the claims, stating that the market has “completely misunderstood the latest tax changes”, citing in particular the fact that value protected annuities have been included in the new ‘death tax’ rules.
The research note, written by equity analyst Oliver Steel, said: “In short, what it means is that future retirees should be able both to guarantee themselves an income for life and, if they die early, to have any remaining funds in their annuity paid to the heirs at the latter’s marginal rate of tax.
“We think this could actually result in an increase in annuity sales once again.”
At the close on 29 September, Just Retirement’s share price was at 128p and Partnership’s was at 105p. Both fell further in subsequent days, ending the week on 120p and 97p respectively.
As at 4pm this afternoon, Just Retirement had risen 3 per cent from its Friday close and stood at 124.4p, while Partnership remained unchanged.
On Just Retirement in particular, which Deutche upgraded to a ‘buy’ rating, Mr Steel wrote that its customers are “relatively unaffected by the latest changes in any case”.
For Just Retirement, the average new annuity is £57,000 with only 25 per cent above £100,000 and almost none above £200,000. Mr Steel added that Partnership’s customer profile is “broadly similar” to Just Retirement’s, although its average annuity policy is slightly bigger at £67,000.
The research note said: “Like JR, the majority of its customers already buy a guarantee, which suggests they would also buy the value protection in its place.
“As such, we believe their customers are primarily interested in the income guarantee that annuities offer, not the ability to leave their remaining pension pot to their heirs. We think the same also applies to Partnership.”
As a consequence, Mr Steel’s view is that both Just Retirement and Partnership are “at worst unaffected and could even gain”.
He said: “Indeed, if anything, we would expect demand for annuities to be enhanced by the changes, rather than the opposite.”
donia.o’loughlin@ft.com
