Loney urges hike in auto-enrolment contributions
Royal London, the insurer and pensions provider which embraces the former Scottish Life company, unveiled another rise in underlying profits as its chief executive expressed dismay at a failure of government to act on a key retirement issue.
Phil Loney called on ministers to raise contribution levels for auto-enrolment, which is not being considered as part of the 2017 review.
“The government has just concluded a review of the detail of its auto enrolment policy, but this key issue was ignored,” he said.
Contributions fall “well short of providing an adequate level of income in retirement”, he said, calling on government to “bite the bullet” and provide a more realistic level.
Mr Loney hailed another good year for Britain’s biggest mutual insurance company which reported a 16% rise in pre-tax operating profits.
“These results reflect the continued excellent progress of Royal London in 2016, performing well despite the backdrop of a turbulent year in politics and markets,” he said.
“It is clear from the sustained track record of growth that our strategy is working.
“Royal London is becoming a much bigger and more established presence in the markets in which we operate. We are now a top-three new business player in several key areas and Group funds under management grew to £100 billion, which is 18% higher than the previous year.
“The resulting growth in our revenues has allowed us to maintain a strong capital position in a volatile world, and to invest heavily in new technology platforms which will enable the business to remain agile and competitive into the future.”
Royal London’s operating profit has also showed strong growth despite operating in a low interest rate environment which tends to depress the profitability of insurance products.
This performance has translated into a 63% increase in the ProfitShare for 2016, to £114m enabling the company to allocate a healthy ProfitShare to with-profits members (a 1.4% addition to asset share) and to deliver on our commitment to start allocating ProfitShare to pension members.
More than 700,000 pension members will be receiving a share of the profits that we are announcing today.
“This is a feature that is unique to Royal London and one of which we are justifiably proud,” said Mr Loney.
Royal London now has more than one million members. Numbers continue to increase rapidly as employees who join workplace pension schemes become members of Royal London, alongside self-employed customers buying personal pensions and using drawdown products to manage their retirement income.
For quarter of a million Royal London pension savers the allocation of ProfitShare will effectively wipe more than a third off their annual management charges.
“This is a helpful boost to growth for Royal London customers but it remains the case that, across the whole of the workplace pensions market, contributions to pensions are too low,” said Mr Loney.
“Automatic Enrolment has been an undoubted policy success but there is no coherent plan to increase contributions to levels that will produce an adequate income when those workers retire.”
“The Government has just concluded a review of the detail of its Auto Enrolment policy, but this key issue was ignored. We know that for most people an 8% pension contribution, made by themselves and their employers, falls well short of providing an adequate level of income in retirement.
“It is time for Government to bite the bullet and adopt a clear policy about saving at realistic levels beyond 8%. Doing so would help to secure an appropriate level of income in retirement for generations of pensions savers.”
· New life and pensions business (PVNBP basis) up by 28% to £8,686m (2015: £6,774m);
· Funds under management up by 18% to £100bn (31 December 2015: £85bn);
· European Embedded Value (EEV) operating profit before tax up by 16% to £282m (2015: £244m);
· IFRS transfer to the unallocated divisible surplus (before change in basis for Solvency II) increase of £116m to £241m (2015: £125m);
· Margin for new life and pensions business of 2.5% (2015: 2.0%);
· ProfitShare (after tax) up by 63% to £114m (2015: £70m); and
· Solvency II Standard Formula basis Investor View surplus of £4.5bn (1 January 2016: £3.8bn) and a capital cover ratio of 232% (1 January 2016: 226%) before closed fund restrictions.
New business review
Intermediary new life and pensions business
· Intermediary Protection business up by 29% to £647m (2015: £502m) following the programme last year to bring all of protection business under the Royal London brand, and the introduction of online underwriting.
· Group Pensions up by 38% to £3,872m (2015: £2,798m) reflecting buoyant sales in the market for workplace pensions.
· Individual Pensions and Drawdown up by 17% to £3,778m (2015: £3,227m)
Consumer new life and pensions business
· Consumer sales up by 82% to £301m (2015: £165m) reflecting the strength of the direct to consumer propositions and growth in distribution partnerships.
· Consumer new business has made a profit for the first time in 2016 and new business margins have increased to 1.4% (2015: (8.8)%) driven by prepaid Funeral Plans offered through Co-operative Funeralcare and Ecclesiastical Insurance.
· Over 50s Life Cover and Life Insurance products both continued to perform well; in the three years since launch the Over 50s proposition has achieved a top three position in the direct-to-consumer market.
· A key part of strategy in the Consumer market is to broaden distribution networks through partnerships with other like-minded organisations, including new partnership with the Post Office announced in January 2017. Royal London is the sole provider of life insurance products to be sold through 11,500 Post Office outlets and online.
· Royal London Asset Management (RLAM) continued to perform well, attracting gross inflows of £6.7bn (2015: £3.1bn) arising from both Institutional and Wholesale markets. Funds under management increased to £100bn (31 December 2015: £85bn), a new Group record. The increase has in part been helped by rising bond values reflecting a reduction in interest rates. This is a particularly strong result in a period of market uncertainty following the UK referendum on European Union (EU) membership.
· The Ascentric wrap platform saw assets under administration increase by 22% to £12.3bn (31 December 2015: £10.1bn). The business recorded gross sales of £2.3bn (2015: £2.5bn), which maintained its market share.