It’s not just about single life pension annuities
Wednesday, August 13th, 2008When people talk about pension annuities what they generally mean is a level, single life pension annuity, whereas actually there’s so many different types of annuity. Most product areas will expand in the future. The pension annuity market’s quite odd in that you’ve got polarisation at the moment, you’ve got the conventional annuities at one end and unsecured income at the other end. With standard pension annuities, we’ve already seen providers come in offering weighting factors other than the standard age, sex and fund size.
For years people have been saying there’s so much room for growth in the enhanced annuity market, but we need to raise awareness of it. Business volumes are growing now. There have been quite a few new entrants into the market over the last 12 months. The reasons for that, a lot of companies have actually been seeing a lot of their pension pots going to the enhanced specialists via the open market option. So by launching their own enhanced solutions they can actually retain some of that business, and also by the open market option actually win business, where potentially they’re actually losing cases each year. Last year for the first time the enhanced annuity market breached £1 billion. Other insurers will therefore develop into the market.
There is the possibility that the enhanced annuity segment as we know it will disappear shortly. At the moment we have a standard annuity, an enhanced annuity, an impaired life annuity, and a lifestyle annuity. However, these are actually all beginning to merge. What we’re going to have is a single annuity market which is going to be a lot more personalised.
Up to 40% of people could qualify for an enhanced rate? Yes, but only about 10% of people actually take one up. So a quarter of people are buying the standard annuity when they could be given enhanced rates.
