(Repeats item published on Friday, no change to text)
By Chris Vellacott and William James
LONDON, March 21 Britain's government may have
damaged its own ambitions to revamp the country's infrastructure
using private sector money after new economic policies hobbled a
key industry's incentive to invest.
Policies announced on Wednesday in the annual budget
scrapping the requirement for millions of retirees to buy an
annuity with their savings has weakened a key pillar of business
strategy for the British life and savings industry.
Insurers are keen investors in infrastructure projects like
bridges and housing because the long-term, steady revenues from
road tolls and rents fit well with obligations to pay income
over decades to their annuity clients.
"If what's been announced results in a material reduction in
annuities, it is almost bound to impact on the life and pensions
appetite for investing in long-term assets," said a senior board
member at a blue chip insurance group on condition of anonymity.
The reforms to pensions announced by the government
effectively meant Britain's insurers lost control of a captive
market worth up to 15 billion pounds per year that would have
gone into their annuity products.
PLEDGE FROM BIG INSURERS
Six big UK insurers - Legal & General, Prudential
, Aviva, Standard Life, Resolution
and Lloyds Banking Group unit Scottish Widows - pledged
in December to invest 25 billion pounds in transport and energy
projects over the next five years.
Industry sources say that commitment still stands but if
annuities are likely to make up a smaller component of the
insurers' business mix, future commitments to infrastructure are
"It's the last thing on your mind when you're trying to work
out whether you have a business model in this particular space.
The rug's been taken from under them in terms of their ability
to finance this sort of project," said Eamonn Flanagan,
insurance industry expert at Shore Capital.
Britain's government has made boosting private sector
investment in infrastructure a priority as it grapples with
crumbling and overcrowded roads, railways and airports while
trying to curb public spending.
A spokesman for the Treasury denied the impact of new
policies on insurers' annuities businesses would undermine their
incentive to back infrastructure projects.
"UK infrastructure will continue to be an attractive
investment for companies here and around the world, with around
15 billion pounds of inward investment in UK infrastructure
since May 2010," the spokesman said.
He added that the willingness of insurers to commit money to
infrastructure last year was largely due to new European capital
requirements for insurers - known as Solvency II - having proved
less burdensome than initially feared, freeing up more money to
But in a document detailing new pensions policy titled
"Freedom and Choice in Pensions", the government concedes there
could be an impact on future appetite for infrastructure
investments from the reforms.
The document says the current stock of UK annuities is worth
around 210 billion pounds with 11 billion pounds being added on
average every year.
While existing annuities will not be affected by the
reforms, new retirees could invest less into these products.
This, the document says, could affect demand for assets used to
back annuities - including infrastructure.
However, some infrastructure experts said demand for UK
infrastructure is sufficient to keep money flowing into new
projects for now.
"There is still a huge number of investors that see
infrastructure as a great investment to match their long-term
liabilities," said Tony Roper, head of secondary infrastructure
at investment manager InfraRed Capital Partners.
(Editing by Stephen Powell)