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: PHP Developer

£32000 - £36000 per annum: Recruitment Genius: A rapidly expanding company in ...

Recruitment Genius: PA

Negotiable: Recruitment Genius: A PA is required to join a leading provider of...

Recruitment Genius: Car Sales Executive - Franchised Main Dealer

£30000 - £40000 per annum: Recruitment Genius: This is a great opportunity for...

Ashdown Group: IT Support Analyst - London - £43,000

£35000 - £43000 per annum + Benefits: Ashdown Group: Senior IT Support Analyst...

Day In a Page

Read Next
 

Any chance the other parties will run their election campaigns without any deceit or nastiness?

Nigel Farage
 

The digital world is incredible – but it’s human bonds that make us who we are

Joanna Shields
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness