(Bloomberg) — Legal & General Group Plc predicts Britain’s 11.9 billion-pound ($19.7 billion) annuity market will shrink by 76 percent because of U.K. Chancellor of the Exchequer George Osborne’s proposed changes to the industry.
The individual annuities market, a key source of domestic profit growth for British insurers, will decline to 2.8 billion pounds of premiums by 2015, Chief Executive Officer Nigel Wilson said in an speech today. He also said demand for British longer-dated government debt, which are bought by insurers to match long-term liabilities, will drop.
“We do expect individual annuity sales to go down,” Wilson said at the Morgan Stanley Investor conference in London. “If you have a short life expectancy, you are more likely to take cash.”
In his 2014 Budget last week, Osborne scrapped rules that pushed retirees to buy an annuity, allowing them to withdraw their pension savings without being hit by a 55 percent tax rate. The move erased about 3.6 billion pounds from the market value of insurers and sent shares of L&G, Britain’s biggest manager of pension assets, tumbling by as much as 14 percent.
Under the proposed new pension system in April 2015, L&G expects the industry will see a three-way split between annuities, a full withdrawal of savings estimated at 4.9 billion pounds, and drawdowns of savings and new products valued at 5.8 billion pounds.