Partnership has dismissed claims that margins will be squeezed for providers in the post-Budget retirement income world, arguing that the radical reforms to give pensioners full access to pensions have “de-commoditised the market”.
Last month, provider LV admitted that enhanced annuities margins had been squeezed in the wake of the Budget as it reported that first half profit before tax was down by 47 per cent to £47m from £88m.
Later, Moneyfacts published a report showing that annuity rates had experienced their biggest monthly fall for three years during August, which it blamed in part on growing pressure on providers to cut rates in response to lower demand.
Speaking to FTAdviser, Richard Williams, director at JLT Employee Benefits, agreed and said that major annuity providers such as Partnership, Just Retirement, MGM Advantage and LV would need to attract significant new business due to declining profit margins.
He added that some of these firms may find they cannot leverage existing client banks in the way larger, more diversified providers can and will need to innovate in terms of products or potential even consolidate to stay alive.
“If these smaller providers can’t attract new business it’s going to be the death of them. Their business model has inherently changed; it’s flipped on its head over the last six months.
“If they don’t have a competitive and easy to use product, I can see potential consolidation in the market.
“Fortunately, these are very well managed companies who, from their origins, have a very strong track record in meeting the challenges of a rapidly evolving market through innovation. We’re already seeing evidence of these providers adapting.”
Stephen Groves, chief executive at Partnership, responded: “From April we’ll have a set of rules where people will be able to differentiate their products quite significantly, it’s not clear to me that the impact of that is a reduction in margin.”
He added: “We’ve always wanted to design contracts that best meet customer needs. We’ve been quite constrained at times by the inflexibility of annuity rules, so as they loosen that creates the opportunity to create products that best meet customer needs.
“I actually don’t think many customers need huge amounts of flexibility, but for some it will be important, so we’ll be looking at how we take the new rules and relate them into products.”
Stephen Lowe, director at Just Retirement, said the firm is also planning to roll out new products from next year.
“Post-April, when we can roll out our new products, we will benefit from those retirees that have deferred their decision to annuitise and from those newly reaching retirement age.
“Our new products will be very attractive to retirees, offering certainty of income and new flexibility over how and when their guaranteed income products pays them.”
A spokesperson for LV stated: “Since the Budget announcement we have launched two products and four funds which focus solely on the drawdown market. As one of the largest drawdown providers in the UK we are confident that we have a range of solutions to meet customer needs.”
peter.walker@ft.com
