UK pension freedoms (2015)
A UK reform that in 2015 ended the de facto requirement to convert retirement savings into a life annuity: annuity sales fell as soon as it was announced, and longevity risk shifted back to households.
Until 2015, a UK saver in a defined contribution plan in practice had to buy a life annuity with most of the pot, or face punitive taxation. That gateway made insurers the bearers of longevity risk and fed a very deep annuity market. The reform left each person free to take the money, keep it invested and draw from it (drawdown), or buy an annuity. It responded to dissatisfaction with annuities seen as poor value after years of low rates, but it shifts to individuals two risks they manage badly: running out of savings by living long, and selling assets at the wrong time, after a market fall. It also steered UK insurers away from individual annuities and toward buying out entire defined benefit plans.
On March 19, 2014, Chancellor George Osborne announced in his budget the end of the requirement to buy an annuity, effective April 6, 2015. According to the Association of British Insurers, the number of annuities sold fell from 74,270 in the first quarter of 2014 to 46,368 in the second, and their value from 2.5 billion to 1.8 billion pounds. In the first quarter of the reform, 950 million pounds went into annuities against 1.48 billion into drawdown.
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