Bulk annuities remain a good option for pension schemes despite the announcement on annuities in last week's Budget, Aon Hewitt has said.

The consultant said that although last week's announcement will have an impact on insurance companies, it should not affect opportunities in the bulk annuity market for pension schemes.

Dominic Grimley, Aon Hewitt principal consultant, said: "The Chancellor may have rocked the pensions world with his Budget speech announcements, but we remain comfortable in recommending bulk annuities to pension schemes in this changed environment.

"A good – if now reworked – business model should enable insurers to continue to make money in this market and provide a secure home for pension promises."

He said that the level of capital held by insurance companies has not changed, even if the tax rules for annuities have, as insurance companies have ring-fenced capital reserves for annuities.

Grimley added that a fall in the scope for new business could even be beneficial to policy-holders in the very short-term, as less capital will be needed for allocation to new policies, should individual annuity business reduce.

He said: "It is worth reiterating that even if the owners of an insurance company made the extreme decision to stop offering annuities, policyholders remain subject to the substantial protections of the regulatory regime, and cannot be disadvantaged if the annuity promises are ultimately passed to another insurance company which has a stronger ongoing focus on annuities.

"In our view, these changes will pose more questions for the management and investors in insurance businesses, than for defined benefit (DB) pension schemes looking to de-risk into what remains a safe environment for backing pension promises."

First published 25.03.2014

monique_simpson@wilmington.co.uk