(Rewrites first paragraph, adds detail and background)
By Chris Vellacott
LONDON, March 26 (Reuters) - The UK market for individualannuities will shrink by around three quarters after governmentmeasures freeing retirees from having to buy them come intoeffect next year, one of the biggest annuity providers forecaston Wednesday.
Nigel Wilson, chief executive of life insurance and pensionsprovider Legal & General Group Plc, said he expects theamount of money going into individual annuities to shrink toaround 2.8 billion pounds ($4.6 billion) a year from 11.9billion, though he did not give forecasts for the group's ownfuture business mix.
Wilson's comments at an investor conference in London followa shakeup of the pensions system announced by finance ministerGeorge Osborne in his budget last week.
The reforms, due to be implemented in April next year,effectively scrap a system forcing most retirees to swap theirpension savings for an annuity that pays out an income for life,giving them instead a choice in how they invest.
Faced with warnings that savers might blow their cash onluxury items such as Lamborghini sports cars, pensions ministerSteve Webb said after the budget it should be savers' own choiceabout how to spend their money.
For annuity providers such as L&G, the move threatens a keybusiness line and shares in L&G - as well as others such asAviva Plc, Standard Life Plc and Prudential Plc - fell after the reforms were announced.
MORE EMPHASIS
Wilson acknowledged L&G's business mix would changefollowing the reforms, with more emphasis on its fund managementand pension savings businesses.
"The end of, effectively, compulsory annuitisation atretirement for most people in defined contribution pensions willmean adjustments to our ... retirement business, but not as manyas some observers might think," he said.
He also said L&G's "bulk" annuity business, aimed at companypensions rather than individuals and which is unaffected by thereforms, would continue to grow, offsetting falling sales of theproducts to individuals.
Earlier on Wednesday, L&G said it had won a 3 billion poundsbulk annuity contract with the pension fund of chemicals makerICI (now part of Dutch group Akzo Nobel NV ), adding toits 34.4 billion pounds stock of annuity assets.
"We are extremely confident that we will write more annuitybusiness in 2014 than in 2013 ... possibly substantially more,"Wilson said.
L&G sees much of the money that individual savers would haveautomatically put into annuities under the old system - around5.8 billion pounds - being invested in alternative products,while close to 5 billion a year will be taken in cash.
New products and services offered to retirees such as fundmanagement could be less profitable for financial services firmslike L&G but are also less capital intensive, Wilson said.
He added L&G is planning to develop products offeringretirees income in return for equity in their property, known asequity release.
"We certainly expect to see more cash being taken out,either singly for small pots or across several years, and weexpect to see more use of the housing asset as pots get depletedmore quickly," he said. ($1 = 0.6059 British Pounds) (Editing by Steve Slater and David Holmes)