Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK Annuity competition has never been weaker

Personal_Finance / Pensions & Retirement Jul 26, 2016 - 01:35 PM GMT

By: MoneyFacts

Personal_Finance

The latest analysis of the annuity market by Moneyfacts has highlighted the challenging pricing conditions facing the sector and suggests that competition in the annuity market has never been weaker.

The analysis conducted for the Moneyfacts Personal Pension and Annuity Trends Treasury Report shows a seeming lack of appetite among providers to compete for annuity business, a factor which is contributing to record low annuity rates.


The report shows that the average annual income from a level without guarantee standard fell by 3.4% (based on a £10K purchase price) during Q2 2016. However, rates have fallen even quicker since, with average annual annuity income falling by 6.3% in the month following the outcome of the EU referendum. As a result, annuity rates are now at record lows and have declined by as much as 12% since the start of the year.

Richard Eagling, Head of Pensions at Moneyfacts, said: “The heavy gilt yield falls sparked by the EU referendum result and the more onerous capital requirement of the new Solvency II rules are having a dramatic and devastating impact on annuity pricing. Faltering competition within the annuity market has compounded the situation. The severe fall in annuity rates in Q2 2016 and in July have left many retirees facing a conundrum: they still want a secure sustainable lifetime income but are reluctant to annuitise at a time of record low rates.”

Table 1: % change in average annual annuity income

Weaker competition

Competition in the annuity sector has generally been on the wane since the Government announced its plans for pension freedoms in March 2014. The resulting decline in annuity sales has made aggressive pricing difficult, if not impossible.

A useful indication of the lack of competition afflicting the annuity market is the narrowing gap between the highest and lowest annuity rates on offer. In Q2 2016 this gap fell from 16.1% to just 10.7%. It has now fallen to just 9.2%, the lowest level we have ever recorded. The last time that the gap was below 10% was in the aftermath of the switch to gender neutral pricing in Q1 2013 when annuity providers adopted an ultra cautious approach to pricing until the market had settled down. 

The reason that the gap between the most and least competitive annuities has closed significantly in recent months is that the market-leading rates have been cut more heavily than those at the bottom.

Richard Eagling said: “This reflects the fact that some annuity providers currently do not want annuity business, so are effectively pricing themselves out of the market. A trend that is not conducive to encouraging competition within the annuity market is the significant number of retirees who are still not shopping around for the best rate. With the majority of annuitants remaining with their existing pension provider and not seeking expert financial help, the motivation for annuity providers to compete on price has been reduced.”

A further sign of weaker annuity competition is the fact that the number of annuity providers active in the open market has started to contract again. The completion of the merger between Just Retirement and Partnership to create the JRP Group in Q2 2016 means the number of providers competing for pension annuity business on the open market has fallen to a new low of just 11, and has more than halved since 1994. Prudential’s decision to withdraw from selling annuities on the open market through financial advisers will further weaken competition.

Richard Eagling added: “The reduced volume of annuity business and pricing challenges has meant that some annuity providers have been evaluating whether it is viable or attractive to play an active role in the market or whether they should concentrate on other product areas such as drawdown instead. Competition in the annuity market has never been weaker.”

The Q2 2016 Moneyfacts Personal Pension and Annuity Trends Treasury Report was published on 25 July 2016.

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in