Huge collapse in annuity sales (UK)

[mpyan1]

Aviva and Legal & General said their annuity sales have plunged by 23 per cent and 49 per cent respectively.

http://www.dailymail.co.uk/news/art...rers-say-number-taking-income-slumped-50.html

 

[Calum]

I'll be interested to see what happens 24 months from now. Everyone at the moment is holding off to see what the landscape looks like, but once the dust settles I suspect sales will pick up again.

The difference in the drop is interesting.

 

[mpyan1]

As sales drop, the shame on Actuaries increase, for allowing such poor value annuities to be sold to unsuspecting people for all these years.

 

[Calum]

I will reserve judgement until we see what the actual effect is on people who decide to take their pensions savings early.

But I think it's interesting that even with such a "poor value" half the purchasers out there (roughly speaking) have looked at all the available information and decided an annuity is still the right choice for them at current market rates.

 

[mpyan1]

But I think it's interesting that even with such a "poor value" ...

The share price drop of the annuity providers upon the Chancellors' announcement confirm the poor value criticisms.

 

[Calum]

The share price drop of the annuity providers upon the Chancellors' announcement confirm the poor value criticisms.

No. It reflects the expected drop in sales.

 

[cjno1]

I would definitely have expected annuities to drop off substantially, as we are seeing. Before the budget changes, pensioners were practically forced to buy an annuity so almost everybody ended up with one. Now, with the added flexibility from the budget changes, this will no longer be the case and so sales should drop.

I still expect annuities to make up a very important option in retirement planning and will be used by many people (especially as the chancellor has also allowed insurers more flexibility in how they design their annuities, which should give better outcomes for customers), but nowhere near as much as when they were compulsory.

There is still no better way to get a guaranteed income for life than buying an annuity.

 

[Mesut]

@Mpyan, actuaries' first responsibility is to ensure the solvency of the company so that it will be there to meet client benefit payments tomorrow. We don't want annuity providers closing shop in the middle of the night now do we?

Unfortunately this means building margins against adverse deviations in experience in the mortality rates, investment returns, expense and inflation etc which basically translates into lower annuity payouts. In the recent past a crucial assumption has been impacted i.e. a regime of ultra low interest rates courtesy of quantitative easing and other manoeuvring by BoE. Clearly monetary policy in this. regime is hurting savers, pensioners, buyers of Long Term Care products etc. Actuaries are therefore NOT to blame for the investment return environment which is hurting potential purchasers of annuities. That blame in my view should knock on the door of the regulators who let the financial system build up so much systemic risk prior to 2007 through dangerous products such as NINJA. loans.

As actuaries we need we should be leading the way perhaps in promoting annuities whose payouts are linked to inflation perhaps to offer annuitants protection of real retirement benefits. Lets leave the quibbling to the masses lets provide solutions

 

[mpyan1]

Actuaries are therefore NOT to blame for the investment return environment which is hurting potential purchasers of annuities.

My concern is not this but how actuaries have allowed the rip-off annuity rates that people innocently accept. This practice disgraces our profession.

 

[morrisja]

My concern is not this but how actuaries have allowed the rip-off annuity rates that people innocently accept. This practice disgraces our profession.

Are annuity rates rip offs? There's a cost for risk transfer especially in a long term contract with guarantees and then low interest rates hits annuities too. There is a profit loading but I doubt it's excessive given the number of competitors in the market.

To blame actuaries for the price of annuities is like blaming the waiter for how expensive your meal was. Sure we can feed back that things aren't ideal, but actuaries can only influence the government, not control it.

Annuities aren't the best choice for everyone and I think that's the problem that the new rules will solve, but it was government policy that forced people to buy them. People are meant to be making informed decisions here, part of the problem is that people don't even think about these things until it's too late.

Were actuaries a little slow and quiet on this one? Maybe.. I'm not sure. But I think there's only a small amount of blame due for that.

 

[Calum]

My concern is not this but how actuaries have allowed the rip-off annuity rates that people innocently accept. This practice disgraces our profession.

OK. Provide a justified basis for UK open market annuity rates and I'll tell you what, I'll even calculate a few example rates for you and we can all see for ourselves what a rip off annuity rates are.

 

[Mesut]

Self deprecation is a good thing...it helps you to stay humble especially when behavioral finance says that the more you know the more likely you are to overstate your abilities.

However I still sharply disagree with you. The blame needs to be laid at the door of thosr who allowed this systemic risk build up in the first place - the regulators! The only thing actuaries need to beat themselves over is why they did not question the laxity of the system's guardians in the first place! I have a feeling this could have something to do with our training which seems to insist on compliance with regulations. In other words we have taught ourselves to be good obedient children who cannot imagine the teacher could get it wrong!

Imagine if investment actuaries had called out the leverage of the system in time! And while at it recommend the need to set up economic capital requirements for the risks taken on by the shadow banks, a double whammy - we get to look good and create capital roles for ourselves plus we deepen our tentacles on the financial system! Make that a tripple whammy!

Then the near zero interest rates wouldn't have happened and our annuity pricing would NOT be such a "rip off" as mpyan1 puts it.