The two providers make up 40% of the open market annuity business.
The pension reform package, the biggest in a generation, removed the effective compulsion for retirees to buy an annuity allowing more savers to access drawdown or take small pots as lump sums.
Hargreaves Lansdown head of pensions research Tom McPhail said the deal had been sparked by the retirement reform package but does not signal the “death of annuities”.
He said: “The retirement income market has changed fundamentally since the Budget of 2014.
“The majority of smaller pension pots are simply being cashed in, drawdown demand has increased significantly and at the same time, the proportion of customers shopping around the market for the best annuity deals still isn’t increasing.
“Given these factors and the similarity of their business models and strategies, it is hardly surprising to see these two companies merging.”
He added: “This should not be seen as evidence of the death of annuities though.
“Investors still show a strong appetite for a secure retirement income for at least some of their pension pot and for those that do shop around on the open market, enhanced annuities now make up over 75% of all transactions.”
McPhail said Just Retirement has the larger market share and its share price has “proved more resilient since the Budget”.
He also said Partnership’s share of business has been increasing in recent months.
“The two companies’ combined share currently makes up over 40% of the open market annuity business.
“As highlighted in their announcement this morning, there is still considerable potential for enhanced annuity providers to add value to defined benefit scheme derisking strategies,” said McPhail.
“For existing annuity investors, this deal is likely to help dispel any concerns or uncertainty they may have had over the future of their annuity provider and the security of their retirement income.”
Sign on the dotted line…
Under the terms of the deal, Just Retirement shareholders, which also operates in the equity release market, will own about 60% of the combined group, with Partnership Assurance shareholders owning the other 40%.
Partnership shareholders will be entitled to receive 0.834 new Just Retirement shares for each Partnership share held.
The deal values Just Retirement shares at 199p, Partnership shares at 166p, and values the entire issued and to be issued ordinary share capital of Partnership at approximately £668.5m.
The boards of Just Retirement and Partnership have agreed a unified management team of the combined group under the leadership of Rodney Cook as group chief executive.
Just Retirement and Partnership intend to raise equity capital amounting to approximately £150m following the merger.
The boards of Just Retirement and Partnership said they believe the merger will deliver “significant strategic and financial benefits” for the combined business.