Ever since George Osborne lobbed a gammon grenade into the annuity world during his last Budget, I’ve been an interested spectator on how this area of the pension world would react.
Even as I watched the Budget, it dawned on me that I’d never seen a purge live on TV before. This, I pondered, is how things must have been during the days of Stalin, but surely never so public or cruel.
Not being a member of royalty, I can say this, too. I hope. If nobody hears from me for a few days, please alert MI6.
Since the Budget, we’ve seen a raft of new flexible annuity products, 1-year fixed term products and ‘third way’ annuities emerge. (Personally, I’ve never trusted anyone who uses the phrase ‘third way’. They’re almost certainly short-cut merchants, communists or Tony Blair.)
Some of the recently launched 1-year fixed annuities, in particular, have been slaughtered by the likes of Ros Altmann because of the lack of perceived value. I’m pretty sure she’s got a point, too.
My fear here for the annuity providers is that there is only so many times you can polish a turd. And this particular one has been buffed into oblivion.
There’s no doubt that the Budget changes have triggered a paradigm shift in the pension world. In many ways I see the new regime as a democratisation of pensions: the whip hand has moved from the life companies to the consumer.
And this time round, rather than simply rebrand existing products (like renaming their personal pensions to Sipps in the ‘90s), the life companies are actually going to have to develop new products that adviser can recommend and consumers want. Imagine that!
While the party is over for the life companies, there is huge potential for new product providers in this £11bn a year industry to forge a brave new pension market centred around the consumer, not fee structures and profits.
Moving forward, the emphasis will have to be on flexibility, service levels, value for money and transparency.
The next few months will show us how the behemoths of the pension world react, and adapt, to this tectonic shift in their marketplace.
Will the — arguably knee-jerk — focus on 1-year fixed term annuities in the aftermath of the Budget prove to be the initial strokes of a forward crawl or the last gestures of a drowning man?
John Fox is managing director of Liberty Sipp
