According to the paper, analysis of administrative and survey data suggests that around 13 per cent of annuities are paid out to those in receipt of means-tested benefits, primarily pension credit and housing benefit.
For social care, modelling using survey data estimated that around 15 per cent of those receiving state support with their social care currently have annuities.
Mr Higham stated that the document itself is not overly optimistic. “Having read the detail, it acknowledges that it may not be workable entailing risks for the most vulnerable in society and would deliver poor value in most cases given the significant frictional costs involved.
“There is no cost/benefit analysis performed to show that this policy will offer clear benefit, but there are clearly significant costs and risks involved.”
The paper also ruled out annuity buy-backs by the original insurer, as the government revealed it feared this could be a source of detriment and could undermine the competitive market that the reforms hope to create.
John Fox, director of the pension provider Liberty Sipp, commented: “Forget actuaries, the chancellor will have to employ the services of Stephen Hawking to come up with a formula for calculating the value of annuities.
“On a technical note, pension companies don’t keep their all their assets in cash, and they will need to sell huge amounts of other assets if there is a run on them; this could take many to breaking point and be potentially cataclysmic for the industry.”
emma.hughes@ft.com
