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* Retirees to spend pension pot as they choose from April 6
* Concern of advice gap, that some may opt to blow cash
* Firms jockey for position, insurers set to lose morebusiness
By Carolyn Cohn
EDINBURGH, March 13 (Reuters) - Weeks before Britons getfree rein over how to spend their pension pots, industry playerssay it is unclear how many will choose to leave the safe harbourof an income-bearing annuity.
Some retirees are expected to ditch plans to buy thosepreviously obligatory annuities in favour of more flexiblepensions, while others could pay off debts or even splash out ontreats such as a luxury cruise, in a huge shake-up for thesector.
The shock industry reforms, announced a year ago, mean fromApril 6, more than six million pension-holders will no longerneed to buy a fixed-rate annuity with "defined contribution"pension savings. Such savings total around 300 billion pounds($445 billion) in Britain.
The likely losers are firms whose life insurance businesshas traditionally relied on selling annuities, and the likelywinners those insurers and fund managers who are able to bothmanage pension fund assets and provide more flexible products.
Speakers and delegates at a National Association of PensionFunds (NAPF) conference this week said that "Pension FreedomDay", as it has become known, could herald months of confusion.
"It has the potential to be a complete mess," said AndrewScott, principal in the Edinburgh office of consultants PunterSouthall.
Financial Conduct Authority Chief Executive Martin Wheatleytold the conference the industry was moving into "the greatunknown", with the risk of an M25 motorway or Heathrow AirportTerminal 5 moment - large projects which looked good on paperbut had disastrous launches.
The Association of British Insurers has been critical ofgovernment and regulators' lack of readiness for the changes,while Royal London, Britain's largest mutually owned life andpensions company, said it was concerned investors would makepoor financial choices.
A survey of more than 10,000 people last year by Britishover-50s travel and insurance company Saga showed 8percent of those planning to switch from an annuity would spendsome of it on a holiday.
And even if people are very prudent, they could still fallvictim to scams, Wheatley told conference delegates.
"Scams and fraud, we know, tend to proliferate at the momentof maximum uncertainty," he said. "This will be the moment ofmaximum uncertainty."
Delegates told Reuters the problem was compounded by a lackof qualified independent financial advisers.
ANNUITY BLUES
Annuities have already felt the heat of the changes, with adrop-off in sales of 50 percent after the reforms were announcedas people held off from buying one and instead waited for therule change to go live.
That hurt insurers such as Legal & General and JustRetirement, and contributed to industry consolidation,led by the planned 5.6 billion pounds acquisition of FriendsLife by rival Aviva.
Some insurers have clawed back business through the sale ofbulk annuities, insuring companies' defined-benefit - or finalsalary - pension schemes, but analysts still see insurancecompany profits falling over the longer-term because of themoves.
The need to act was stark, though, with pensioners unhappywith sinking annuity rates given the double whammy of longerlife expectancy and the impact of easy monetary policy, as theBank of England's money-printing pushed interest rates lower.
Much of the money could instead go to drawdown products -which allow pensioners to vary the amount of money they withdraweach year, with a range of insurers developing new products andcutting fees in a race to attract the new money.
And at the same time as receiving up to 10 times less incomefrom a drawdown product than an annuity, insurers are likely toface stiff competition from asset managers.
"There is nothing to stop the asset managers developingtheir own drawdown products," said Jackie Wells, head of policyand research at the NAPF, who said this process was known as "toand through" - to retirement and beyond.
The industry also needs to adjust its approach to managingpensions savings to give customers the best deals, industryparticipants said. The "default" option most employees go forwhen choosing their plan is designed to lead towards an annuity,but if workers are looking to take out cash or more flexiblepensions after retirement instead, those default funds shouldinstead target higher growth assets such as equities, they said.
"It's going to evolve over time," said Stuart White, head ofUK institutional business at HSBC Global Asset Management, whichhas pension scheme funds offering cautious, balanced andrisk-seeking options.
In the end, though, pensioners still need to pay their billsand many need a steady, reliable source of income - meaning themuch-maligned annuity may just need a face-lift, possibly byusing drawdown for the first 10 years of retirement beforeswitching to a fixed-rate product.
And if British interest rates start to rise sharply in thenext few years, as shown by official forecasts, an annuity maynot be such a shabby offering after all.
($1 = 0.6722 pounds)
(Editing by Simon Jessop and Pravin Char)
