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LONDON (Alliance News) - Resolution Ltd Thursday joined peers in trying to allay fears caused by Chancellor of the Exchequer George Osborne's annuities shake-up, under which people are to be given greater flexibility and choice in how they manage their pension pots.
Shares in UK annuity providers have plummeted since Osborne on Wednesday unveiled as part of his Budget presentation plans to remove the current requirement for most people to buy annuities in order to turn their pensions pots into income in retirement.
Although people will still be able to take out annuities, they will also be able to take out their pension savings in a lump sum or draw them down over time. The government has published a consultation on how to implement the changes.
An annuity is an insurance policy that provides a guaranteed lifetime income for retirees, but they have been criticized for providing poor levels of payout.
The FTSE 100 life company, which offers annuities through its Friends Life brand, admitted that Osborne's move holds "a negative implication for new business flows in the individual annuity market", but said the changes will have no affect on its market consistent embedded value of GBP6.07 billion at the end of 2013.
Embedded value on a market consistent basis is a signal of a life insurer's ability to generate cash in the future.
Resolution said annuities will continue to be "an important product" for people who want the security of a guaranteed income throughout retirement.
With some analysts warning that the 2014 Budget has the potential to lead to the demise of the individual annuity market, Resolution said it could benefit from savers who are encouraged to increase their pension contributions by the new flexibility they have in planning for retirement.
"As the number two player in workplace defined contribution pensions with around 2 million DC pension customers overall, estimated to hold 1 in 7 policies in the market, and with positive operational leverage in our Corporate Benefits business, Friends Life is well placed to benefit from these changes," Resolution said in a statement.
Resolution shares were Thursday morning quoted at 313.90 pence, down 6.3%. The shares had lost 4.6% on Wednesday.
The radical proposals facing the annuity market have drawn responses from Legal & General Group PLC and Just Retirement Group PLC, as well as Partnership Assurance Group PLC.
Partnership Assurance, which sells annuities to customers who may have diabetes, high blood pressure, heart disease or cancer, has been hardest hit by the proposals. Its shares have lost more than half their value since Osborne outlined his plans for the annuity market.
"Partnership will work constructively with the government during the consultation process. We believe that these proposals do not affect our range of Defined benefit, Care annuity and protection products," Partnership Assurance said in a statement after the close, Wednesday.
"Partnership believes annuities remain an important part of retirement planning, a key objective of which is transforming pension savings held in investments into a predictable retirement income for the rest of the consumer?s life," Partnership added.
Partnership Assurance shares were down a further 11% Thursday morning at 127.90 pence. L&G was off 0.7% at 209.80p, while Just Retirement was down 4.6% at 146.95p.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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