Reject Prudential’s transfer appeal

Alot rides on pension plans and annuities. Mistakes can wreck the lives of retirees. But UK insurers trade contracts as bulk commodities. This rankles with many policyholders. They do not expect a pension group they or their employer chose for supposed stability to flog their life savings to a company of which they may never have heard. It looks perilously close to misselling.

Such a case is playing out in the UK courts. Prudential, the 171-year-old life insurer, wants to transfer a £12bn annuity book to Rothesay, set up by Goldman Sachs and backed by private equity firm Blackstone. The deal would free up capital as Prudential splits in two via a demerger.

Policyholders rightly objected. In August, a high court judge blocked the deal. On Friday, Prudential and Rothesay launched an appeal. Lawyers and advisers fear for the lucrative transfer market. It would be in industry and consumer interests, however, if the appeal were rejected.

The UK transfer business is growing fast, setting a model for other countries. Many transfers make sense, and the law allows flexibility. Insurers shut up shop. Others want to redeploy resources. Former employees of failing companies are safer afterwards. Many pensions are portable, so can simply be moved elsewhere.

But an annuity is for life. Many choose Prudential for its reliable image. As annuitants, they are locked in. Prudential should not be able to dump these customers as if they were a financial deadweight. True, independent experts vouch clients will not be materially affected. But who knows what might happen decades hence? Prudential would face a bigger reputation threat than private equity if in a crisis it did not stand behind elderly UK clients.

Prudential has a reinsurance arrangement for annuities with Rothesay, transferring risks and rewards. It boasts of its heritage, but dropping old annuity customers gives the claim a hollow ring. /London, October 2

© The Financial Times 2019