Specialist annuity provider Just Retirement (JRG) jumps 2.1% to 160.6p as investors warm to its diversification plan. The move is in response to the government scrapping compulsory purchase of the income-generating products.

In March chancellor George Osborne paved the way for retirees to invest their funds how they see fit, a move that looked to hit Just Retirement hard.

Yet in its third quarter update Just Retirement announces a £5 million plan to introduce new products to reduce its reliance on selling annuities that pay higher incomes to those with limited life expectancy.

Just Retirement has already launched a one-year fixed-term annuity to help new retirees benefit from the new rules when they are introduced next year. It is also looking to cut £14 million of costs.

These moves are needed. In the three months to April it closed £288 million of annuity sales, 34% up on the figures recorded a year earlier. However, current volume is down some 50% on pre-Budget levels highlighting the need for the company to diversify its offering.

JUST RETIREMENT GROUP - Comparison Line Chart (Rebased to first)

One positive is that it appears demand will continue for annuities. It was forecast that the company would take an 80% hit in demand when the pension system was overhauled.

Espirito Santo analyst Phil Dobbin comments: 'Q3 was clearly a confusing period with the UK Budget late in the period changing the fundamental outlook for annuities and with the added complication of Just Retirement having some IUAs (individual underwritten annuities) in pipeline and some written on cancellation periods. It looks as if 70% of annuitants in the pipeline actually followed through since they had already taken a decision to retire and take a regular income, with larger cases delaying until April 2015. The company notes that sales are now around 50% of pre-Budget levels, but it is difficult to know whether this will be representative of the rest of the year and or indeed post April 2015.'

He adds: 'What does appear clearer to us is that the UK Chancellor did intend annuities to remain a part of the market and that Just Retirement will continue to trade and is investing in new products and distribution. We would therefore expect the last reported embedded value of 178p to provide some solid underpinning to the share price.'

Issue Date: 12 May 2014