As the dust settles on Chancellor George Osborne's fifth budget, Andrew Power and Richard Baddon from Deloitte's consulting and actuarial practices discuss the announcement on annuities.
Generally, the budget was one that encourages savings, but for the real estate industry specifically one important facet was the news that pension savings will no longer need to be annuitised on retirement, providing asset managers with the opportunity to access investment flows that would previously have found their way into annuities.
While it is still too early to draw any firm conclusions, the article highlights a number of issues that may impact real estate. Chief amongst these is the opportunity for real estate to fill some of the void left by a decline in the annuities market. If, as expected, the take up of annuities falls, the response is likely to be a rise in demand for alternative medium duration savings products.
In order to capitalise on this demand fund managers will need to offer a more tailored range of products than the 'one-size-fits-all' approach of annuities - but if the primary objective for pensioners remains the provision of a reasonable income return with capital protection, then real estate can make a strong case to be a part of any such products. More generally, the fact that pension savings no longer need to be annuitised means that pension fund managers have an opportunity to attract more capital, and hold it for longer, with knock-on impacts for their demand for real estate assets.
Implications of Budget Announcement on Annuities full article
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