By Margot Patrick
LONDON--A planned shake-up of Britain's pensions industry that
will give U.K. retirees vastly more freedom over their savings sent
shares in insurers reeling Wednesday.
Under the plans announced by U.K. Chancellor George Osborne,
people who save for retirement by paying into a workplace pension
program will no longer be forced to buy annuities--a type of
savings product that ensures a steady stream of income until death
that has created frustration for many savers because of their low
rates of income and opaque fees. Instead, people retiring will be
given free financial advice to decide whether to cash out their
savings or move them into new investments.
Mr. Osborne said the move shows that the government trusts
savers to control their money, by giving them "complete freedom to
draw down as much or as little of their pension pot as they want,
anytime they want." The change won't apply to people with employers
such as the government who promise to pay pensions based on an
employee's pay.
Shares in Partnership Assurance, which specializes in annuities
for people with health problems, lost more than half their value,
trading down 56%. Another annuity provider, Just Retirement PLC,
fell 44%.
A spokeswoman for Partnership Assurance, which was floated on
the London Stock Exchange last year by private-equity firm Cinven,
declined to comment. Just Retirement, part-owned by Permira after a
November float, said in a statement it welcomes legislative changes
that give retired people more flexibility and noted that many
people choose annuities even if not required to do so.
Insurance groups were also hit, with Aviva PLC losing as much as
8% of its value and shares in Legal & General Group PLC
initially dropping 12%. A spokeswoman for Aviva declined to
comment. L&G said consumers will have more choices now,
including the insurer's many other retirement products.
"This is a total game-changer, and will result in the almost
immediate death of the annuity--for which we have long called for.
It is a huge change in the flexibility of the pension system, with
lower taxes and higher lump sums," said Stephen Ford, head of
investment management at wealth manager Brewin Dolphin.
Roger Mattingly, president of the Society of Pension
Consultants, said the "whole shape of pensions" should change for
the better for most people, but warned that good, independent
advice will be more crucial than ever for people in deciding how to
finance their retirement years.
The Financial Conduct Authority in a study last month concluded
that the annuity market wasn't working well for some consumers,
mainly because they weren't shopping around for the best deal and
often didn't understand their options. The regulator said around
420,000 annuities were sold in 2012, with a premium value of GBP14
billion ($23.2 billion). It estimates around 10.5 million people
are enrolled in pension schemes that need to be turned into income
upon retirement.
At the moment, retirees who want to cash out their pensions in
full are charged at a 55% tax rate. Under the new plan, they would
be charged their normal tax rate, which in the U.K. ranges from 20%
to 45%.
Write to Margot Patrick at margot.patrick@wsj.com
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