PensionsMay 7 2014

L&G saw £15m of annuity business cancelled post-Budget

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Insurance giant reports a record first quarter of 2014 and insists the axing of the requirement to buy an annuity in this year’s Budget will not hit the business as hard as many suspect.

Legal & General delivered “record results” in the first quarter, according to Nigel Wilson, group chief executive, with LGIM reporting assets under management of £463bn - an all-time high - and Cofunds growing assets under administration to £66bn.

Record annuity sales were driven by the UK’s largest ever bulk purchase annuity transaction, a £3bn deal for the ICI Pension Fund.

This was achieved despite individual annuity sales already being down by 40 per cent to £244m, compared with £406m at the start of 2013.

Around £15m was lost through cancellations during the extended cooling off period which was offered to customers post-Budget, the group said. However, despite the cancellation level, Mr Wilson said he was still excited about the prospects for the business.

Mr Wilson said L&G expected to write growing volumes of bulk purchase annuity business to more than offset individual annuity reductions.

His comments failed to acknowledge the concerns of Société Générale analysts, who claimed in March that Legal & General could face greater struggles than its peers in the wake of the post-Budget shake-up of retirement options as a push for more bulk annuity business could make the company “inherently riskier”.

With private sector UK DB liabilities of around £1,800bn, of which £600bn is already in payment, Mr Wilson said demand for bulk purchase annuity was likely to grow regardless of the defined benefit to defined contribution transfer consultation outcome.

He said the BPA market is “very different” to individual annuities. It requires a strong and sustained track record, a robust capital base and specialist expertise across longevity, investment management and asset transitioning.

As a result, Mr Wilson said L&G has all these competitive advantages, built up over 27 years and would be “a market leader in this field”.

As a result, he said Legal & General expected to continue achieving target return on capital.

Mr Wilson added L&G was “ideally placed” to provide alternative solutions to annuities.

He said: “There is strong demand for our pension de-risking and protection products in both markets - the [£1,800bn] of UK DB liabilities will provide substantial future business. We believe the UK DC market will grow from around £250bn today to [£3,000bn] by 2030.

“LGIM’s recent agreement to acquire Global Index Advisors (GIA), a US-based DC provider will accelerate our US growth.

“In quarter one we invested in UK infrastructure and housing at a rate of around £100m per week, completing £1bn of transactions including Cala’s acquisition of Banner Homes and a £252m investment in affordable housing provider Places for People which will finance 7,000 new homes.”