UK – The Pensions Commission will be looking at what tax and regulatory changes are needed to reshape the working of the annuity market, the commission chairman Adair Turner said in London.

Turner queried whether the selling of annuity products where the risk of death was so low provided much benefit in terms of cost optimisation. “It is probably a good idea that we write less annuities at the very early ages,” he said.

It would be most useful if the marketplace for annuities focused at the long end. “This may tend to happen through free market forces,” he added. “But we would be wary of doing anything which would be subsidising the long-term annuity market as we want fair pricing of the very long-term uncertainties in annuities and so create an incentive for later retirement.”

In addition, efforts should be made to develop product options enabling people to arrange “annuitisation between 55 and 75. There might be people willing to accept that risk”.

“One of the things the Pension Commission will be looking at is whether there would be any tax or regulatory changes that would be required to facilitate that sort of product take-off.”

He continued: “It is really an issue of how do we end up with the market equivalent of drawdown products, which are now primarily concentrated at the higher income end”

There is, Turner stated, a stage beyond where there probably should be annuitisation, which should logically shift back over time. “We should be focusing our appetite and our capacity for longevity risk absorption at the most useful end.”

Turner was giving a lecture at the Cass Business School in London on the topic of “"Pensions, Risk and Capital Markets".

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