Insurance executives unhappy with George Osborne’s proposals which threaten to curtail the £12bn-a-year annuity market
By James Quinn
The heads of some of the UK’s largest insurance companies have called on regulators to intervene in the wake of the Chancellor’s planned pensions shake-up.
The Sunday Telegraph has learnt that the chief executives of some of the country’s biggest life insurers have lobbied both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in the past few days.
The executives are unhappy with George Osborne’s proposals which threaten to curtail the £12bn-a-year annuity market.
Mr Osborne outlined the plans in Wednesday’s Budget – billed a "Budget for savers" – saying he wanted pensioners to have flexibility when it comes to what to do with their pension pot. His comments wiped £4.4bn from the value of the UK’s biggest life insurers – with shares of Legal & General, the UK’s biggest investor, down 8.4pc – as investors sought to get out of the sector for fear of the implications of what had been announced.
The insurance industry is one of the UK’s biggest employers, with FTSE 100 constituents including Standard Life, Legal & General, Prudential and Aviva.
Senior industry figures spoken to by this newspaper, who asked not to be named, said that there is a need for both regulators to be actively involved in Mr Osborne’s plans ahead of them becoming law next April.
No senior industry executives were consulted by the Treasury on the proposals ahead of the Budget, a move which has angered some, particularly given their backing of the Government’s infrastructure proposals.
Ahead of the Autumn Statement, six of the UK’s biggest insurers committed to inject £25bn into British infrastructure over the next five years, something which a number of sources spoken to said could be in jeopardy if the Treasury pushes ahead with its pension changes. Several chief executives are understood to have called on the FCA to put an end immediately to its annuity market review, which began last month.
The review followed a study which found that the annuities market is "dysfunctional" and led to inertia when it came to pensioners choosing who to select products from.
The FCA is due to report its findings in June or July, at the same time as the Treasury is due to publish its thoughts following a 12-week consultation on its annuities plans.
In addition, others in the market are known to have discussed the situation with the PRA to reassure the regulator over future capital positions and for guidance over its thoughts on what has been proposed.
Rodney Cook, chief executive of Just Retirement, one of the companies likely to be badly hit by the changes, told this newspaper: "The most critical thing is that the FCA must be the Government’s arm in this and must make sure that what is being proposed is fit for business. The FCA is critical in feeding in to the Government’s process."
Other leading chief executives pointed to the FCA’s recent demands for large amounts of information for its annuities review – sent out 10 days ago, with a four-week deadline – and questioned whether running two consultations at once makes sense for the industry.
However, one senior City source said such lobbying was pointless: "It’s inevitable. Annuities are over. Companies need to figure out new retirement products and move on."
Another source pointed to the fact that the PRA is in a difficult position, as the associated changes announced by Mr Osborne alongside the new pension framework mean that more money will flow into savings, helping banks capital positions.
A PRA spokesman confirmed it has been contacted by firms. An FCA spokesman said questions had been asked as to a cessation of the market review but said that the fundamentals of what the regulator is looking at had not changed.
Source The Telegraph
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