Partnership: Budget hit to sales will be ‘short-term’

Specialist annuities provider Partnership has issued a letter alongside its annual report that has been sent to shareholders today (9 April) warning of a ‘short-term’ hit to annuities sales as a result of the overhaul of pensions rules at last month’s Budget.

However, the letter signed by chairman Chris Gibson-Smith claims a government guarantee that all savers will receive “guidance” in the lead up to retirement will make up for the hit on annuities in the ‘medium-term’ by “significantly increasing the number of people who shop around”.

Mr Gibson-Smith adds that the company remains “financially strong” and that its defined benefit, care annuities and protection will not be affected by the changes. The company will therefore continue to pay the maiden dividend of 3 pence per share announced in March.

Partnership announced the dividend on the day of the Budget in preliminary results that revealed total operating profits of £131m for 2013, a 17 per cent rise on 2012 that was achieved in spite of a 3 per cent drop in new business caused by a year-end rush ahead of regulatory changes in 2012.

Analysts have sounded particular concern over Partnership, which lost more than half of its value in a major sell-off on Budget day, due to the fact it is currently reliant for around 80 per cent of its revenues on new individual annuities sales.

Mr Gibson-Smith writes: “Over the short term, until the implications of the proposed changes are fully understood, it is likely that we will see a reduction in the sales of our individual retirement annuities.

“However, this may be balanced in the medium term by the proposal that all retirees will benefit from free financial guidance at the point of retirement, potentially significantly increasing the number of people who shop around and consider an annuity.

“Although there is potential for the overall market for annuities to contract, a much larger number of people than currently do so may purchase an annuity through the open market option.”

Estimates on the hit to annuities have varied in the wake of the chancellors reform plans being announced, with some predicting a drop of as much as 90 per cent. Legal and General’s Nigel Wilson forecast sales would shrink by three-quarters from £11.9bn to £2.8bn annually.