March 20, 2014 7:34 pm

Quest to find annuity decision’s winners

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With the words “no one will have to buy an annuity”, George Osborne handed the investment industry a huge opportunity, say some fund managers and financial advisers. Together with online investment platforms, the UK’s fund management and advisory groups are the businesses most likely to emerge as winners from the pensions revolution announced by the chancellor in this week’s Budget, they argue.

“This is a great business opportunity for the investment industry,” according to Patrick Connolly, a financial adviser at Chase de Vere. “It will benefit savers, but it will benefit the industry, too.”

The theory is that a large slice of the £12bn-a-year market in annuities – the buying of an annual income for life in retirement – will now be channelled into investment funds or be used for financial advice.

Analysts expect as much as £8bn will be diverted from annuity premiums into the investment business. In such a scenario, investment groups such as Schroders, Jupiter Fund Management and Henderson Global Investors – each of which has a large UK retail investment business – are likely to attract the cash that would have been spent on annuities.

Barclays says online investment platforms and financial advice firms, such as Hargreaves Lansdown and St James’s Place, will benefit too – as money goes into drawdown products, by which investors use part of their pension pot for investing, or for self-invested personal pension schemes.

Hargreaves Lansdown, the UK’s biggest online investment platform for individual savers, is expected to gain extra fees as clients stick with the funds offered via its website for longer.

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Another probable winner is Fidelity Worldwide Investment, which offers products for UK retail investors and guidance by telephone and website. Ed Dymott, head of business development and strategy at Fidelity Worldwide Investment, says: “We can do well from this, both in terms of the funds we offer and the advice we give. But it is not just about the business doing well. It is the customer, too.”

Fund management groups with products that offer a regular income, tailored for pensioners, are among those expected to win customers – as they enable retirees to earn an income while maintaining their cash invested in the market.

However, some fund managers say it is not clear how much they are likely to benefit from the reforms, given the small size of many pension pots and the lack of investor sophistication. Alan Brown, a senior adviser at Schroders, says: “I am not sure it necessarily means that Schroders will gain much extra business. Many investors only have a small amount of money.”

Extra fees from advice may be limited, too, as the government plans to offer free guidance. Danny Cox, head of financial planning at Hargreaves, says: “We hope to benefit from this, although the real winners are the savers and pensioners.”

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