Annuities Insurance in the UK, Key Trends and Opportunities to 2017

Date: 2015-09

“New business premiums in the annuities market rose by 25.9% to GBP13.6 billion in 2012 as customers rushed to buy annuities before the gender-neutral pricing rules were introduced on December 21, 2012. Advisers also aimed to secure new annuities business ahead the Retail Distribution Review (RDR) rules banning providers from paying commission to advisers.
The 2012 surge in annuity sales helped insurers to maintain a steady level of new business, leading to an overall expansion of the annuities market, excluding bulk transfer and deferred annuities, at a compound annual growth rate (CAGR) of 4.1% during the review period (2008−2012).
Annuity rates have been in decline for 20 years, reducing the amount of income people can buy with their pension pots to record lows. Annuities convert an individual’s pension savings into an income for the rest of their life. The fall in annuity rates was attributed to the rising life expectancy, meaning that life insurers have had to guard against paying out for longer.
Annuities are also invested in low-risk gilts, or government bonds, and therefore, linked to movements in gilt yields. The Bank of England’s policy of quantitative easing (QE) caused interest rates and gilt yields to fall, leading to a collapse in annuity rates.
The continuous pressure of Solvency II also meant that annuity providers had to drive up their capital reserves and charge more for annuities – resulting in lower pension incomes for customers.

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