British insurer Aviva agreed terms on Tuesday for a £5.6 billion pound (€7 billion) all-share takeover of rival Friends Life, responding to pressures caused by pension industry reform.

Pension providers are rushing to revise their product ranges after the government in March surprisingly removed obligations for people to buy an annuity, or income for life, at retirement, hurting sales.

Aviva said the merger creates a market leader with 16 million life insurance customers. It is expected to generate £600 million in excess cash flow a year and about £225 million in annual cost savings by the end of 2017.

Andy Briggs, current group chief executive of Friends Life, will become CEO of Aviva UK Life, with Mark Wilson continuing as CEO of the enlarged Aviva Group.

Briggs told reporters that the two businesses worked well together. Friends Life’s corporate pension business is skewed to larger firms, while Aviva focused on smaller ones, alleviating any concerns about a reduction in competition. “There’s a very good complementary fit,” he said. After the changes announced by the government in March, insurers have focused on alternative products such as pensions drawdown which allow savers more freedom over the amount of money they withdraw each year, or “bulk annuites” - taking on the risk of company defined benefit pension schemes.

Reuters