The bulk annuity market will grow significantly over the next five years in spite of higher costs due to low interest rates and Solvency II capital requirements, according to Fitch Ratings.
The ratings firm said in a report that insurers are shifting towards bulk annuity deals away from individual annuities which have suffered a "permanent structural decline" as a result of the chancellor's April pension reforms.
Sales of individual annuities had fallen sharply since the March 2014 Budget announcement that retirees would no longer have to buy an annuity with their pension pots. However, sales were expected to stabilise in 2016 significantly below the pre-2014 level, at between 30% and 50% down.
The firm this has freed up the capacity of insurance companies to operate more in the bulk annuity transfer market.
Fitch Ratings senior director David Prowse said: "Insurance companies are selling less of the annuity business and that frees up capacity to take on other business, mainly bulk annuities.
"Any rise in interest rates will make it more affordable to owners of pension schemes to transfer their liabilities away. In the long run that will be a driver for better affordability from a pension scheme perspective," he added.
The firm also predicted that insurers would look towards higher-yielding illiquid assets, such as equity release mortgages, to back their annuities. However, the success of these could hinge on structuring such investments in the new Solvency II regulatory environment in which insurers face tougher capital buffers.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.
More members transferred out of defined benefit (DB) pension schemes in October after September's record lows while values were surprisingly stable, according to XPS Pensions Group's Transfer Watch.
Joanna Smith says trustees will need to accurately identify if covenant issues are short-term affordability concerns, or the start of more material deterioration.
Consumer complaints against firms for misadvised DB transfers also rising