Underwriting will become the "norm rather than the exception" in annuity business in the future, potentially creating a more varied pensions market, Prudential's head of business development has claimed.
Vince Smith-Hughes (pictured) said the whole industry is gearing towards delivering more personalised annuity policies, which could in turn make the pensions market more diversified, with products such as investment annuities becoming more popular.
He suggested that as a bigger slice of the annuity pie could be handed out to some people as a consequence of underwriting, while others may be worse off.
He said: "Underwriting annuities will become the norm rather than the exception. I suspect there will be much more individual underwriting but, irrespective of that, there shouldn't be the blanket assumption that the annuity is always the right thing for every client."
He added: "With the number of enhanced annuities continuing to rise it means that the remainder of people will not benefit from these 'poorer' lives mortality cross-subsidy.
"There's a real danger some people may therefore be 'priced out' of conventional annuities and will need to look at different solutions that are available."
"There are alternatives to conventional annuities which could be suitable for quite a lot of people."
Smith-Hughes said advisers are often stuck between annuities and income drawdown and would not look at alternative solutions such as investment annuities.
"If they are not already considering it, then advisers should think about mixing and matching retirement products to find the right solution. The old adage 'don't put all your eggs in one basket' is often a good one," he said.
He also warned that while initiatives such as the Association of British Insurers' (ABI's) Annuity Window service, which publishes individual insurers' annuity rates, was a good tool to help shopping around, it did little to help promote the wider market.
Instead it threatened to create a culture where policies were chosen by price alone, he added.
Smith-Hughes said: "While we are firmly behind the recent ABI comparisons initiative, it is important to remember that shopping around isn't just about finding the best initial income rate. Identifying the right solution for people is the first step, otherwise it could cost retirees more in the long-run."
Prudential's annuity rate of £972.59 per annum for a single annuity for a healthy person living in Manchester with an £18,000 pot, as listed by the ABI, is mediocre. But its rate of £979.52 for a 'stroke sufferer who is currently stable' is even worse compared to the rest of the market.
In contrast, the provider offers the highest enhanced rate for a 'severely impaired person with a lung disease who also smokes', at £1,778.23 per annum.
Smith-Hughes said: "Smaller providers are offering a very attractive starting income on enhanced annuities but the criteria they consider relevant are much different to what we consider. Our expectation was that we wouldn't be very high on some enhanced annuities for that reason."
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