Annuities remain logical choice provided they are fairly priced

 

Share

Despite bleatings from some self-serving sections of the insurance industry that Osborne’s pension plans will be disastrous, it could actually prove to be the opposite.

Handing over responsibility and choice to people is likely to encourage them to get much better outcomes for their retirement cash, rather than make them suddenly behave recklessly and blow it on holidays.

And warnings that the move is a death knell for annuities – Barclays reckons the market could shrink by two-thirds in just 18 months, for instance – are far from the mark.

Sure, in the short term the surprise proposal has been a disaster for insurers. Annuity specialist Partnership has been hardest hit, losing half its stock market value immediately after the announcement. The company’s shares took a further big battering today, slumping another 10 per cent or so. Meanwhile, the UK’s biggest insurers have seen billions wiped off their values.

But the change actually gives insurers a challenge: to turn their expensive, poor-value products into fairly priced ones with decent payouts. If they can do that then it will be logical for older people seeking an income in retirement to make a positive choice and buy an annuity.

Robin Williamson, technical director of the Low Incomes Reform Group, suggested: “The vastly more flexible rules for drawing down pensions without necessarily taking out an annuity should force providers to be more competitive in what they are prepared to offer pension savers.”

And early reaction suggests that the insurance industry is up for the challenge. “There will be an appetite to engage with the challenge of a reformed framework, and make it work, just as providers in the market will innovate to meet the demand created by the new rules,” predicted Huw Evans, deputy director general of the Association of British Insurers.

That innovation is likely to see a drift towards lifetime savings schemes, rather than specific retirement savings  – a concept much easier to grasp.

Millions are already used to stashing cash in tax-free individual savings accounts instead of blowing it in an orgy of spending. When they’re given a more flexible pension they are likely to adopt the same sensible approach, not least because leaving their cash within a pension for as long as possible will allow it to grow tax-free .

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Massage Therapist / Sports Therapist / Physio / Osteopath

£12000 - £24000 per annum: Recruitment Genius: An opportunity has arisen for o...

Recruitment Genius: Account Manager / Sales Executive - Contract Hire

£35000 - £60000 per annum: Recruitment Genius: This industry leader provides c...

Recruitment Genius: Project Coordinator

£28000 - £30000 per annum: Recruitment Genius: A Project Coordinator is requir...

Recruitment Genius: Area Sales Manager - Midlands

£20000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

Read Next
 

Don’t pity me for eating alone, just give me a better table

Rosie Millard
Aerial view of planned third runway at Heathrow  

Heathrow expansion: This final 'conclusion' has simply fanned the airport flames

Chris Blackhurst
John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most