Millions of people will be worse off in retirement because annuities will be less worthwhile due to Budget reforms, it was claimed today.
Experts said annuities will cost more because of the decision to let some people opt out if they wish.
It could also affect the housing market as some pensioners may use nest eggs to go into the “buy to rent” market for a retirement income.
Paul Johnson, director of the Institute for Fiscal Studies, said: “Some people will be left worse off, let’s be clear, because it will become more expensive to buy an annuity.
“Only those who really think they’ll live a long time will buy an annuity now, making these more expensive.” Annuities pay a fixed monthly income for life, which means healthy people who live till their nineties are subsidised by those who die younger.
Mr Johnson predicted “a big fall” in purchases because those retiring who think they are vulnerable to life-shortening illnesses will use their new right to pull money out.
London Mayor Boris Johnson said: “The thing on annuities is brilliant. One thing people feel most indignant about is having to buy an annuity rather than being able to use their money in any other way, because annuities often aren’t very valuable.”
Shadow Chancellor Ed Balls said Labour had considered reforming annuities but had felt there were risks that such changes could fuel tax-avoidance.
