UK - Scheme wind-ups will force the government to scrap compulsory annuities or set up a state-backed alternative, a leading economist claims.
Companies which wind up their schemes are required to buy out future liabilities by purchasing annuities.
But London School of Economics governor – and independent government adviser – Ros Altmann claims this is no longer viable as the market has shrunk to just two insurers, Prudential and Legal & General.
She says that forcing companies to buy annuities deprives members of money while writing plans for people in their 20s and 30s is risky for insurers.
And she warned there would be severe pressure on Prudential and L&G if a number of companies moved to wind up their schemes.
Altmann said the government had two options – either make annuities optional or offer a state-backed plan in order to ease pressure on the market.
She said: “Nobody has woken up to the reality that this is unsustainable. The system is not working properly, there are not enough assets to back it. “Insurers are saddled with other liabilities, and it’s hard to see why they should underwrite long-term open-ended liabilities like this.”
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