Firms that offer annuities in the UK market stand to see their sales and margins hit by changes to the UK retirement savings system that were proposed in last week’s budget, says Moody’s Investors Service.
The rating agency says, in a new report, that announcements in the UK budget last week have credit negative implications for life insurers, particularly firms that are focused on annuities. The government announced that it will allow pension savings to be taken as cash, rather than requiring retirees to buy annuities.
“Whilst these changes may ultimately encourage future savings into pension products, we think that the changes will significantly reduce sales volumes and margins in the UK individual annuity market, a key driver of future profitability for many insurers,” said David Masters, vice president and senior analyst at Moody’s.
“We estimate that individual annuities currently account for up to approximately 50% of UK life insurers’ UK new business value, with individual annuities currently one of the most profitable lines of business for UK life insurers, and that individual annuity sales could decline by between 50%-75%,” he says.
As sales and profits may decline, and competition in the retirement market will increase significantly, Moody’s says that the changes are credit negative for UK life insurers.