The Open Market for conventional annuities received another blow as one of the most trusted brands in the space exited the field. Prudential have announced that they will only sell products to existing customers or those going through its direct channel in future. Clearly Prudential have decided that the introduction of pension freedoms has reduced the market for conventional annuities to a level where it is no longer worth making an effort to dominate.
As they have not been a big player in this space for some time, it will not have a major effect immediately on the market but as a big, trusted brand in this space, Prudential’s move is hardly a vote of confidence in the annuity market. With the number of annuities being sold stabilising after the precipitous fall post the introduction of pension freedoms, the future demand for annuities is clear. However, if the number of providers continues to fall, the competition in this space will also decrease leading to poorer outcomes for pensioners looking for a secure place for their lifetime earnings.
Annuities should still remain a core part of the retirement market. Nothing else provides the stability that annuities do and whilst the appeal of managing one’s one money is undeniable, the difficulties of doing so later in retirement are obvious. At least with annuities, pensioners were guaranteed a regular income and were therefore far less vulnerable to market movements and fraudsters.
Without a vibrant annuity market, pensioners will suffer. To that end, the move by the Prudential is very much to be regretted. But it also shows that immediate action must be taken, if the future of retirees is to be protected.
It indicates that the government should take another look at the whole retirement area, or better still move the responsibility to a non-political body. We need to look at Australia’s moves to reduce pension freedoms based on their two decades of experience of it and their decision to legislate that all future pension legislation must be focused on providing an income in retirement. Clearly they are having problems with people running out of money in retirement due to their extreme level of pension freedom. That’s why they are now determined to ratchet back those freedoms and focus on making people use retirement savings to provide an income throughout retirement.
It would be a mistake for the UK not to try to learn from Australia’s experience. The longer we hesitate, the worse the situation may become. We don’t want to allow the guaranteed income provision market to deteriorate too much without at least examining whether we can learn anything from what’s happened down under.
Putting the focus of pension saving back on income provision for non-working retirement years must become a cornerstone of the UK’s future pension policy. It’s time to start thinking, before the man from the Pru’s gentle stroll away from the market becomes a general stampede from the other players.