BlackRock, the world's largest asset manager, is set to mount an aggressive challenge to UK life insurers after concluding that the government's pension reforms could lead to the collapse of the annuities market.
Robert Kapito, BlackRock's president, told investors that up to $25 billion of UK pension savings annually was now "money in motion" thanks to the decision to remove an effective requirement for retirees to buy an annuity.
Shares in life insurers tumbled after UK chancellor George Osborne’s budget last month as investors feared a potential wipeout of one of their most lucrative products and the industry continues to debate how sharply annuity sales are likely to decline.
BlackRock has signalled it is in no doubt about the scale of the opportunity. Executives leapt on the announcement of the shake-up on March 19th, and have already begun to develop new retirement products aimed at the UK market.
“We intend to put a lot of effort into putting together more retirement products to capitalise on this market,” Mr Kapito said on a conference call to discuss quarterly earnings this week.
BlackRock has identified a number of key areas for investment, according to sources familiar with executives’ thinking. It is planning to offer new products to help savers make their money last throughout retirement, balancing the need to keep generating returns as the savings pot depletes over time.
It also believes that because employees will keep their money inside workplace pension plans beyond retirement, employers will want to offer new, easier to understand investment options.
Mr Kapito pointed to the US, where BlackRock has begun offering LifePath savings plans that are designed to follow savers as they switch from their accumulation phase into retirement and the gradual drawdown of their savings.
Barclays forecast the value of new UK annuity business will fall from its current £12 billion annually to £4 billion in 2015, while other forecasters say it could decline by up to 90 per cent. – (Copyright The Financial Times Limited 2014)
