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Where will UK pensions money go?

Thursday, March 20, 2014 - 02:36

Mar. 20 - The latest UK budget ushers in pension reforms which will potentially free up billions of pounds for investment. Joanna Partridge looks at what impact it will have on the pensions industry - and where the cash might go.

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He called it a budget for makers, doers and savers. The big surprise in British Finance Minister George Osborne's annual budget plan was a shake-up of pensions - a move that's being seen as a vote winner among older Brits. He called it the biggest change in 30 years. It gives Brits more access to their pension pots. People won't have to buy annuities - insurance products bought on retiring, which pay out monthly sums until death. Pensioners will also be allowed to take more money from their pension pots as a lump sum. Richard Jeffrey from Cazenove Capital Management says the change is not before time. SOUNDBITE: Richard Jeffrey, Chief Investment Officer, Cazenove Capital Management, saying (English): "This does not mean that people are not going to buy annuities full stop. Annuities will still I think suit a lot of individuals when they come to retirement age." Despite this, Osborne's announcement wiped billions of pounds off the market value of the pension industry. If some annuity demand falls away, insurance firms could now face lower levels of business in a market worth 12 billion pounds a year. Shares dived by as much as 8% at Legal & General on Wednesday. According to Bank of American Merrill Lynch, it makes a quarter of its core profits from annuities. Stock in other insurers Aviva and Prudential also slid. Britain's big insurers insisted their businesses are diverse enough to withstand any long term hit to annuity sales. So what could investors do with their extra funds? SOUNDBITE: Richard Jeffrey, Chief Investment Officer, Cazenove Capital Management, saying (English): "I think it will mean that more is held in equities and for a longer period. I think there may be you know another interesting outcome from here. I think it may make people more aware of what they have in their investment portfolios. I think because of this situation in which most people when they built up a pension fund, it's just been effectively transferred into an annuity and an annuity income, didn't really think about what they had in their pension fund and weren't particularly close to the assets which are held there. I think this will make people closer to the assets and make them more responsive to how things develop, particularly in equity markets, so you might actually see the cult of the investor emerging in the UK in the same way as you see it in the U.S." Others expect some pensioners to put their cash into property - which may affect the buy-to-let market. The government has asked insurers and other pension providers to give retirees guidance. But there are fears that while some pensioners may become canny investors, others may invest badly and risk squandering their life savings.

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Where will UK pensions money go?

Thursday, March 20, 2014 - 02:36