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Pension freedoms prompt £1.7bn annuities merger

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Radical pension freedoms announced last year have dramatically reduced demand for income-for-life annuities, forcing two bitter rivals to concede that the market is not big enough for the both of them.

Just Retirement and Partnership, which both specialise in sales of so-called ‘impaired’ or ‘enhanced’ annuities for those with health issues or whose life span could be cut short by smoking, have announced they will merge to form a £1.7bn combined entity, the Daily Telegraph reports.

It is effectively an acquisition of Partnership in an all-share deal that Reuters notes values the business at £669m.

Both firms, backed by private equity firms Permira and Cinven, had enjoyed strong performance as awareness of their specialist policies, which pay significantly higher rates than standard annuities, had grown. George Osborne’s bombshell in the 2014 Budget changed all that.

Partnership shares have fallen close to 70 per cent from a peak in 2013 of 519p to a sale price of 166p, while the combined value of the firms has dropped by around £900m since the day before the Budget last year.

The Financial Times says one driving force for the deal is incoming European rules which will require more capital to be held in reserve by insurers to cope with financial shocks. Analysts say that has contributed to other big recent mergers, such as Aviva’s £6.5bn buyout of Friends Life – and perhaps explains the combined JRP Group’s immediate announcement of plans to raise £150m in capital.

But the biggest factor is likely to be the huge drop off in annuity sales, which fell by more than 40 per cent in 2014 in anticipation of reforms, and may since have dipped further. “The market hardly needed two big quoted annuity specialists in the first place”, says the FT. “One could still prove to be one too many in the wake of pensions liberation.”

Pension freedom: transfer options for ex-pats culled

2 July

British savers moving abroad could find it difficult to transfer their pensions without triggering a hefty tax bill, after HM Revenue and Customs culled more than 3,000 funds from a list of schemes previously allowed to house money sheltered from UK tax.

The Financial Times says the list of registered overseas pension schemes has been cut from more than 3,800 to just 663. HMRC temporarily suspended the list in June while it was ‘reformatted’.

Those moving to Australia could face the most significant problems, with only one scheme remaining on the list from a previous count of 1,599. FTAdviser revealed earlier this week that Australian superannuation schemes were no longer deemed to comply with pension tax rules since pension freedoms were introduced in the UK in April.

Under the new regime, pensioners can access their savings without incurring a tax bill from the age of 55. However, they cannot draw down money until they reach that age unless they are in “serious ill health”.

In many other countries, including Australia, local laws allow under-55s to access pension savings if they are in “serious financial hardship” – and as a result, HMRC has ruled that they do not comply with UK law.

Money which is transferred to any such scheme could be deemed an “unauthorised charge”, triggering a tax bill of 55 per cent. A spokesman for HMRC told the FT it was unlikely this would be applied retrospectively for transfers made since April, if the scheme had qualified at the time.

According to International Adviser, Ireland was also hit hard with some 741 Irish schemes being delisted, leaving just 56. All but one of the 100 Swiss schemes was removed, along with 14 of the 16 Spanish schemes, 22 of the 29 that had been listed in South Africa, and 30 of the 34 listed in France.

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