Osborne’s Budget for ‘building a resilient economy’ has already received backlash from insurance firms who saw their share prices tumble within moments of the Chancellor’s speech.
From 2015, pensioners will have the freedom to cash in as much or as little of their pension pot as they wish, thereby removing the need to buy an annuity. This will allow people to access defined contribution pensions savings however they wish after the point of retirement.
Annuities account for around two-thirds of the new-business profits of big, listed insurers and as such, share prices of British insurance companies plunged after the reforms were announced, with close to £3bn wiped off the value of listed firms.
George Osborne has defended the changes to pensions, saying people “are capable of making decisions” over their future finances.
He told the BBC:
“The truth about annuities is that, for many people, they will want an annuity, but for many other people annuities have not been good value, they’ve not produced the kind of incomes people hoped.”
Phil Smart, UK head of insurance at KPMG, said the overhaul will lead to a “fundamental shift” in the sector, particularly given that annuities have been one of the few growth areas of the UK life sector since the recession. The reforms will have a significant impact on the way insurance firms do business, although analysts have argued that demand for annuities will not evaporate following the reforms, due to the secure income they deliver.
Photo by Reddy Aprianto