With-profits could see a revival of interest thanks to the pension freedoms, as investors reassess their long-term savings options.
While they have experienced a decline in popularity since their heyday in the 1990s, with-profits could be due for a comeback now that investors have greater choice of what to do with their retirement savings.
Of the providers who participated in the latest Money Management new business trends survey, total new business, as measured by the industry standard of annual premium plus 10 per cent of single premiums, rose by an average of 24.6 per cent in 2014. This is an improvement from 2013 when total new business rose by an average of 9.4 per cent.
John Perks, managing director of LV= Retirement Solutions, said, “The funds invested in our flexible guarantee bond beat the market benchmarks and the investment return for our main with-profits fund was 11.4 per cent, which is great news for investors. In 2014 we made our flexible guarantee bond available within our pension proposition, and since the chancellor’s Budget announcement in March last year that annuities will no longer be compulsory, we have seen high levels of interest in these funds, with many savers using them as part of their retirement plans.”
During the worst of the financial crisis, new life business took the biggest hit, likely because of investors having to prioritise where to put their money. Life business is often one of the first areas to see a cut as it is a more long-term investment, the results of which are not apparent for some time.
This uplift in with-profits business gives the impression that investors are feeling positive about the state of the UK economy as money slowly flows back into life business.
Mr Perks added, “For those who are seeking a potential uplift in their investments and/or their pension income but want a level of guarantee, these products are an excellent solution. We have seen flexible guarantee bond sales increase by 100 per cent, which indicates that we are witnessing a change in the buying behaviour of those landing and approaching retirement, as such we expect demand to continue to grow.”
Despite the greater emphasis put on pensions and retirement savings over the past year, only seven of the providers surveyed offer new pension business – of which four experienced a negative change in pension new business from the 2013 figures, with only three reporting positive growth. However, the pension freedoms came into effect in April this year, too late for the period covered in our survey, so increased focus on pension business could be a likely trend in next year’s survey.
The future of with-profits pension business could go one of two ways – either those providers who have stuck it out through the declining years will be rewarded for remaining in the business now that the freedoms have taken effect, or new business will continue to be lacklustre.
