Budget bombshell wipes £3.2bn off annuity firms in one hour

The value of listed annuity providers plummeted by £3.2bn in one hour after chancellor George Osborne made sweeping changes to the way retirees can draw an income from their pension pots in today’s (19 March) Budget.

The combined share value of Aviva, Just Retirement, Legal & General, Partnership, Prudential, and Standard Life fell by £3,167m between 1:25pm - just before the bombshell announcement - and 2:25pm.

In the most sweeping change, Mr Osborne announced savers will no longer face the 55 per cent penalty charge if they try to take the rest of their pension after their tax-free lump sum, but will rather be taxed at marginal rates - meaning as little as 20 per cent for most pensioners.

The move could be a huge blow to annuity providers, as it means savers can effectively can their whole pension as cash.

Mr Osborne said: “No caps. No drawdown limits. Let me be clear: no one will have to buy an annuity.”

In the first hour after the announcement:

• Aviva shares fell from 513.5p to 493.96p, wiping £576.4m off of its market capitalisation;

• Just Retirement shares fell from 268.85p to 188.04p, meaning it lost £404m;

• Legal and General shares fell from 1,366.5p to 1,257p, a £1,090m decrease;

• Partnership shares fell from 294.13p to 234.80p, a £237.3m drop; and

• Prudential shares fell from 1,364p to 1,337p, representing a £691.2m decrease.

The losses showed no sign of abating at the time of writing, as commentators predicted the reforms could put swathes of annual annuity sales at risk.

Stephen Lowe, group external affairs and customer insight director at Just Retirement - whose share value was 148.5p as of 3:30pm - said: “I expect once we start talking to investors we will be able to show them the fundamentals haven’t changed. You haven’t had to buy an annuity since 2006 and people continue to do so.”

Adrian Walker, retirement planning manager at Skandia, part of Old Mutual Wealth, warns a quarter of annuity sales are under threat as a result of changes to single pot triviality rules.

He said: “Today’s budget announcement confirmed that consumers with pension pots of up to £10,000 are able to access their savings without having to buy an annuity. Our analysis of ABI data suggests that around 25 per cent of annuity sales are currently for pension pots of less than £10,000.”

Among the changes to the way people fund their retirement, the government will

• cut the income requirement for flexible drawdown from £20,000 to £12,000;

• raise the capped drawdown limit from 120 per cent to 150 per cent;

• increase the size of a lump-sum small pot to £10,000; and

• increase the overall size of pension savings that can be taken as a lump sum, from £18,000 to £30,000.