Annuities provider Just Retirement has struck a £669 million to buy rival Partnership Assurance as the firms seek to strengthen their finances amid sweeping industry reforms.
With sales of traditional annuities slumping in the wake of Chancellor George Osborne’s shake-up, aimed at giving people more choice about how they access their retirement savings, the two groups said they would be able to reduce costs and speed up the launch of new products by combining their forces.
Under the deal, expected to be finalised in December, shareholders in Just Retirement will end up owning 60 per cent of the enlarged group.
The firm’s boss, Rodney Cook, will become chief executive, while Steve Groves – his counterpart at Partnership – will step down when the tie-up completes.
Partnership investors will have a 40 per cent stake in the business after receiving 0.834 Just Retirement shares for each Partnership share they hold.
By joining forces, the two companies said they would be in a stronger position to “develop and accelerate new product launches in the evolving retirement income market”. Just Retirement chairman Tom Cross Brown, who will be deputy chair of JRP, added: “Our two businesses will be bigger, stronger and more efficient together, which we believe will allow us to deliver better returns to both policyholders and shareholders.”
The deal is set to deliver savings of “at least” £40m a year through the removal of overlapping functions, although the integration is expected to generate one-off costs of about £60m, spread over two years.
Richard Eagling, head of pensions and investments at financial data firm Moneyfacts, said: “Given the radical changes that we have seen in the pensions landscape as a result of the changes announced by the Chancellor in the 2014 Budget and the subsequent fall in annuity sales, there is undoubted logic in the decision to merge Just Retirement and Partnership.
“The creation of a combined group could create an annuity powerhouse, and should enable the new company to innovate and develop new retirement income products much quicker.
“Over the past year we have questioned whether there would be enough business to sustain the number of providers operating within the enhanced annuity market and suggested that we may see some exit the sector or consolidate, something that’s now coming to fruition.”
Just Retirement and Partnership also plan to raise about £150m in fresh capital, “providing the financial flexibility to pursue future growth initiatives and product development”.