Sales of annuities fall significantly

Both companies have seen sales of annuities fall considerably in the last year following the Budget in 2014. Partnership Assurance sales of impaired annuities for the first half of 2015 have reduced by 61% from £334 million to £128 million.

Over the same period for Just Retirement the reduction of impaired annuities is 55%, lowering from £933 million to £380 million. Across the industry the sale of all types of annuities reduced by 42% in 2014 when compared to 2013.

For the companies there is a need to diversify the businesses into different markets while being able to use their intellectual property, namely information on lifestyle and longevity.

Both companies currently focus on the equity release market which is booming as property prices increase. As people see house prices rise some release equity and both Just Retirement and Partnership Assurance have used equity release mortgages as an asset to back annuities.

They do this by taking the funds received from annuities and lend to those that own property as customers in the retirement market and equity release market have similar age profiles. However, the Bank of England has made it clear that equity release backing cannot be used under the Solvency II Directive related to financial strength.

Future of the leading impaired providers

The combined Just Retirement and Partnership Assurance merger will be known as the JRP Group with a value of £1.6 billion.

In the short term the merger is expected to have cost savings of £40 million a year after the initial integration cost of £60 million. In addition the group can benefit from a greater financial size, enhanced intellectual property, greater product range and more efficient distribution to the market.

The group also intend to expand other markets such as de-risking the defined benefit market. This is a way of helping employers with large pension schemes to reduce the liabilities.

Information for impaired lives is useful as employer schemes do not take into account mortality when paying income through a defined benefit scheme. By approaching companies the JRP Group can assess the longevity of a defined benefit scheme.

If the scheme includes a large number of employees that are smokers or have impaired health, JRP Group can offer enhanced terms to employees if they agree to transfer away from the employer.

The merger will create a ore substantial company able to compete against Aviva and Legal & General in the annuities market and better able to develop new products in a world with pension freedoms which should also benefit people at retirement with more options.