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Shift in strategy by pensions giant

Legal & General: annuities sales to halve this year

Nigel Wlson Legal GenLegal & General said it expects the sale of annuities to fall further this year after a 54% slump in 2014 following the Chancellor’s surprise change in pension rules.

It has unveiled new products around equity release, fixed term annuities and a drawdown policy via a self-invested pension plan (sipp) in an attempt to claw back lost business.

Individual annuity sales slumped from £1.3 billion to £600 million and L&G forecast they will fall a further 50% this year as retirees gain access to new pension rules that allow them greater freedoms over their pension pots.

In a statement accompanying annual results, it said: “We expect consumers to demand simple, tax efficient products that allow them to ‘cash-out’ their pensions and we have tailored our new products accordingly. We expect 2015 sales of individual annuities to be around 50% of 2014 new business volumes.”

L&G said it was hoping to redress the fall by focusing on bulk annuity deals and has seen this business more than double from £2.8bn £6bn. A similar move was reported last week by fellow annuities seller Just Retirement.

The company is targeting cost cuts of £80m across the business in 2015 after spending £31m on restructuring costs, with a further £40m anticipated for 2014.

The company’s profit before tax was up 8% at £1.2bn (2013: £1.1bn).  Operating profit rose 10% to £1.275b (2013: £1.158bn).

Nigel Wilson, group chief executive, said: “The five global macro trends driving our strategy – ageing populations, globalisation of asset markets, welfare reform, digital connectivity and bank retrenchment – create long term growth opportunities, which we position our businesses to capture. The rapid growth of LGIM’s international business to over £100bn, the £5bn of investment in physical assets in the UK, and our entrance into the lifetime mortgage market are all examples of the successful execution of our strategy.”

The Board is recommending a final dividend of 8.35p (2013: 6.9p) giving a full year dividend of 11.25p (2013: 9.3p), 21% higher than 2013.

Over the last five years the dividend has risen from 3.84p to 11.25p – a nearly threefold increase.

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