General Insurance Article - Royal London show surge in Pensions & Protection busines

 Business highlights

 Royal London has delivered strong growth in new business volumes and profits year on year and has achieved encouraging growth in operating profit despite lower market interest rates, which have reduced existing business profit figures. Operating profit after exceptional items has seen a significant improvement as there was no need to make provision for the group pensions charge cap this year. By business, the key highlights were:

  

 Pension new business volumes and margins were significantly up following the implementation of the ‘pension freedom’ reforms in April. Theincrease in margin to 1.6% from 0.9% at 30 June 2014 is largely attributed to a reduction in acquisition and maintenance costs resulting from the increase in volumes of new business. Sales of the market leading drawdown product ‘Income Release’ surged by 61% in the first half of the year and sales of personal pensions were 56% ahead on the first half of last year. Group pensions new business continues to grow steadily, with a 9% rise on the same period last year.

  

 Protection Intermediary new business volumes were up 43% (£231m) on the same period last year (£161m) and application levels were 53% above the 2014 levels. Critical Illness Cover was improved to provide practical support to customers from February 2015, when the Helping Hand service was extended to include a second medical opinion.

  

 Consumer new business volumes more than tripled (up 207%) from £27m on 30 June 2014 to £83m on 30 June 2015, reflecting growth in the new range of over 50s life cover, funeral plan and term assurance products. The Royal London Over 50s Life Cover product helps those with low levels of savings who may otherwise be facing funeral poverty and provides a final cash sum that, as of July 2015, is on average 5% higher than the market’s leading provider.

  

 Royal London Asset Management (RLAM) continued to perform well, achieving net new external business inflows of £511m (30 June 2014, £1,315m). The business saw significant wholesale net inflows of £388m, predominantly into the UK Equity Income (£135m), Corporate Bond (£135m), Sterling Credit (£49m) and Cash Plus funds (£27m). Institutional net flows amounted to £123m, predominately into Cash and Buy & Maintain strategies, including a new client for the latter, the South Yorkshire Pensions Authority.

  

 The Ascentric wrap platform saw gross sales of £1.19bn on 30 June 2015 (£1.16bn on 30 June 2014) a 3% improvement. The platform has seen strong growth in the retirement market since the pension freedoms, enjoying a 115% increase in customers transferring into drawdown.

  

 Phil Loney, Group Chief Executive of Royal London, said:

 “We are pleased to be reporting a strong set of new business results and robust operating profits for the first half of 2015. The protection division has made strong improvements, with new business figures up 43% compared to the same period last year.This demonstrates that our strategy of refining the intermediary protection proposition to meet the real needs of customers and investing in technology is beginning to pay off.

  

 The biggest story of the first half of the year was, of course, the arrival of pension freedoms in April. The way that these reforms were introduced with a Budget day announcement in 2014, but scant detail and a year to implement, created pent-up demand in the market. We set out to offer all the pension freedoms to all our customers, not just those introduced by advisers. This involved a huge allocation of time and resources to make the changes by the deadline and our strong pension sales performance shows that this investment has worked. Royal London is one of the beneficiaries of the pension freedoms, given that we have virtually no exposure to the annuity market and already had a strong drawdown proposition.

  

 It is now clear that April’s deadline for the introduction of pension freedoms was far from the end of the Government’s pension reform agenda. We have been calling for a properly considered review of the incentives to save in a pension for some time.It is important that we have a settlement that is lasting, and one that that savers understand and have confidence in.

  

 Since launching the review last month there has been much speculation about changing the current system, where pension contributions receive tax relief, to one where contributions are made from taxed income, but are paid tax free on withdrawal.This so called ‘ISA-style’ tax treatment of pension contributions is a fundamental and far-reaching change to the principles of pension savings, which could pose considerable risk to the Government’s aim of creating a savings culture in the UK. There is no evidence that the promise of tax free income, 25-30 years into the future, would be believed by the public given the volume of changes to the pensions system over the last 25 years. Consequently, there is a real risk of a significant fall in savings, which are already too low in the UK. It would also create a parallel system which is wholly incompatible with people’s existing pension arrangements, would take years to develop and would increase the overall cost of pensions. We believe that it is vital to reform the current tax relief system to make long term saving fiscally neutral for all.The incentives need to focus on those with lower incomes, to create a more realistic and lower risk way forward.This could also enable the abolition of the lifetime allowance.”