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Life insurance shares hit by Budget measures

24th March, 2014

Shares in life insurance plummeted on Wednesday after chancellor George Osborne announced a government decision to do away with mandatory annuities.

The Budget measure caused a massive decline in the stock market value of the shares as pension savers were told that they could avoid buying annuities from insurers and, instead, could draw on the savings in their pension funds.

A total of £5 billion was wiped off the market value of the UK's top five life insurance companies.  Legal and General saw the biggest decline, with a £1.8 billion loss affecting its stock market value.  Resolution was close behind, equalling Legal and General's drop of 13 per cent, and leaving it with a loss of £740 million.  Aviva suffered a six per cent fall and a £940 million reduction in its value.

In his 2014 Budget speech, the chancellor also declared that retirees, who made the decision to go ahead with annuities, would be entitled to impartial advice in order to get them the best deal possible.  The majority of people take out an annuity from their insurance company in order to receive an income from their pension savings.

Mr Osborne's decision will mean no more compulsory annuities, previously effectively enforced due to a 55 per cent rate of tax imposed on lump sum withdrawals.

As well as impacting on insurer share values, the Budget news is also likely to affect websites that compare life insurance quotes.  Pensioners will no longer necessarily need to shop around for the most attractive annuity deal.

Retirees look set to have easier access to their savings, and full withdrawals will be a more realistic option.

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