Prudential seeks buyers for £45bn annuity business

Prudential seeks buyers for £45bn annuity business

Prudential has begun a hunt for buyers of its £45bn annuity business, in a move which could lead to the sale of the division and a restructuring of the whole company, FTAdviser understands.

In June this year, Prudential withdrew from the open annuity market. Since then, the provider no longer accepts applications for new external conventional annuity business from financial advisers.

The business continues to provide access to conventional annuities for financial advisers with existing Prudential pension clients and for advisers’ clients holding Prudential annuity income and rate guarantees.

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A source close to the situation said in a review, which is being led by chief executive Clare Bousfield who was hired last month from Aegon, Ms Bousfield made it clear that there were opportunities in the market.

Ms Bousfield orchestrated a £9bn divestment of Aegon's retirement annuities business over the spring.

Although this transaction was the largest of its kind to date, it would be overshadowed by the sale of Prudential’s annuities business.

As a result of this move, a break-up of Prudential into British, American and Asian operations could emerge.

The sale of the annuity business and potential break-up of Prudential have raised questions over whether options in the market place may be reduced in the future.

Rothesay, Pension Insurance Corporation and Swiss Re’s Admin Re or private equity firms are all rumoured purchasers of the annuity book.

Steve Webb, director of policy at Royal London said there is a risk that consolidation in the annuity market could lead to less choice and poorer value for consumers.  

He told FTAdviser: "With many people reaching retirement with relatively modest pension pots, it is vital that they get the best possible return from their savings.  

"It is therefore all the more important that consumers making at-retirement decisions benefit from the support of an adviser who can help them to get the best value deals, however they choose to use their pension pot".

Scott Gallacher, director at Leicester based Rowley Turton said on the one hand, the loss of Prudential from the annuity market might not seem a major issue, as in his experience, they had not been offering competitive annuity rates for some time.

He said: "On the other hand, any reduction in providers must be bad from a competition perspective and is therefore worrying.

"Perhaps the biggest issue would be whether or not the buyer of this annuity book would have the same financial strength as the Prudential."

Mr Gallacher added with continued low yields and increasing longevity, there must be concern about what happens if enough people outlive their annuity pots with the Financial Services Compensation Scheme currently offer 100 per cent protection.

Alan Chan, director at London-based IFS Wealth and Pensions said he did not think this move would have a huge impact on the market in terms of choice, because there are still a number of annuity providers out there.