Aegon UK has admitted the charge cap imposed by the coalition government poses a real threat as it estimates a hit of £20m to £25m a year, equating to more than half of the profits for this year at its current run rate.
Aegon’s quarterly results have revealed that in the first three months of this year underlying earnings before tax hit £22m, a £6m improvement on the previous quarter, driven by “improved persistency and higher equity markets”.
However, Aegon currently estimates the impact of the workplace pension scheme cap on underlying earnings to be between £20m to £25m on an annual basis.
In March, the Department for Work and Pensions revealed that workplace pensions will be subject to a management charging cap of 0.75 per cent from April 2015.
Aegon said its strategy is to “upgrade its traditional policies onto its platform to build scale”. These changes should enable Aegon to accelerate this strategy and capture the benefit from customers consolidating their other assets on the platform, the provider said.
Aegon said it has responded to the changes by simplifying platform charges and the investment fund range for the pension’s platform One Retirement.
Aegon also revealed the radical changes announced in the Budget support Aegon’s “core strategy” to grow the business in ‘at retirement’, which will benefit from an increase in drawdown business, and ‘workplace savings’, which will benefit from growing savings from policyholders through the added flexibility offered by their pensions.
At the end of Q1 2014, approximately 37,000 of Aegon’s clients had drawdown products, representing close to £4bn in assets.
Aegon added that earnings from life remained stable at £18m, earnings from pensions doubled to £4m in the quarter “as earnings benefited from higher equity markets compared to the first quarter of 2013”.
Aegon also said it has spent £5m “in product design and testing” to launch a digital service Retiready, intended to help people consider their retirement ambitions “and understand if their overall readiness for retirement is on track”.
Adrian Grace, Aegon UK chief executive, added the Retail Distribution Review has created a “huge demand for simple retirement products that can be managed by consumers themselves”.
He said: “The UK pensions industry is undergoing a period of significant change but we believe that the Government’s decision to put more power in the hands of the consumer at this year’s Budget was a positive step and one that supports our current strategy.
“In the first quarter of 2014 the business delivered stronger earnings than at any point last year and this has set us up well for the year ahead, particularly as we begin delivering services to customers in a new way.”
