Bulk buyouts could overwhelm annuity market - EXCLUSIVE

Former Downing Street pensions adviser Ros Altmann is urging the government to scrap mandatory annuitisation at 75 to stop the "market becoming saturated".

Altmann also believes the government should issue longevity bonds – which hedge the risk posed by improved mortality rates – to give schemes alternatives to bulk annuities.

She told PP: "There will not be enough volume for all these people who want, or need, annuities. After personal accounts are introduced there will be hundreds of thousands of people coming up to retirement every year.

DB scheme members will also be competing against them in a limited pool of annuities."

Altmann said the annuity market was limited due to the "reservation requirement" that was necessary as a guarantee to the annuity.

"There is only so much that insurance companies can put aside [for the reservation requirement] to write annuity business. Either this makes the process uncompetitive or they will say they cannot do the business," she said.

Altmann said the problem would become more apparent as the trend for DB schemes to move to buyout increased.

"At the moment Paternoster has around £2bn to £3bn. There is more than £1trn in the DB market. What happens when the buyout market reaches £200bn? What happens to people in money purchase schemes? Rates will worsen significantly or it will not be available at all."