Pru drawdown succour as annuity slump drags on profit

Prudential has seen income drawdown sales soar to almost completely offset a dramatic fall in individual annuity sales over the first nine months of 2014, according to third quarter results published this morning (18 November).

Prudential’s third quarter interim management statement revealed that UK new business profit increased 28 per cent to £209m over the year to September, while sales grew 20 per cent to £648m.

However, retail sales of £507m were 3 per cent lower than the first nine months of 2013 and retail new business profit was 22 per cent lower year-to-date, the company said largely due to the reduced sales of individual annuities.

Article continues after advert

Sales were held up by an aggregated increase across onshore bonds, individual pensions and income drawdown of 37 per cent, which offset a 47 per cent reduction in individual annuities. Income drawdown sales grew by 128 per cent, “driven by the strength of our with-profits PruFund offering”.

In total, PruFund assets under management including individual pensions and income drawdown have increased 20 per cent to £10.9bn since the start of the year. Onshore bonds sales of £162m increased by 29 per cent and onshore with-profits bonds sales were 30 per cent higher to £149m.

Prudential noted that the radical pension reforms announced in this year’s Budget resulted in an increasing proportion of customers deferring the decision to convert their pension savings into retirement income.

It added that it expects “significant ongoing demand” for its with-profits bond, with customers attracted by the benefit of a smoothed return to help manage market volatility.

Corporate pensions sales of £117m were 15 per cent lower, in line with the trend seen this year, mainly due to changes to government sector pension schemes.

In addition, Pru wrote two new bulk annuity deals in the third quarter of 2014, making a total of six in the year-to-date compared to one in 2013, generating cumulative sales of £141m and new business profit of £88m in the first nine months of this year.

The results said: “While the UK retirement income market continues to undergo significant change, our business remains well placed to prosper in this new environment through its ongoing focus on its core strengths of with-profits and retirement solutions.”

Furthermore, last week, Prudential offloaded its 25 per cent minority stake in the joint venture which houses the Pruhealth and Pruprotect brands for £155m, while strongly hinting that it will relaunch directly into the protection market.

Pruhealth and Pruprotect, which launched in 2004 and 2007 respectively, were immediately rebranded as Vitality Health and Vitality Life, adopting the name of the key product offering across their range.

The results said: “This transaction sees Prudential UK realise its investment at attractive terms and creates strategic flexibility to participate in the UK protection market.”