Pensions  

DB de-risking can’t save Just Retirement’s falling profits

DB de-risking can’t save Just Retirement’s falling profits

Just Retirement’s underlying operating profit fell by 11 per cent to £86.4m for the year to the end of June, with lower individual annuity sales unable to be offset by increases in the group defined benefit scheme sector.

The new business margin dropped to 3.3 per cent - compared to 4.4 per cent the previous year - due to pricing pressure following the fall in individual sales after the 2014 Budget, meaning new business profit for the current year fell 31 per cent to £36.8m.

Meanwhile, the group’s pipeline of defined benefit de-risking business continues to strengthen, with expectations revised with respect to sales for the first half year to £400m, up by a third from £300m.

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During the firm’s first full year of doing such business, sales were up more than five fold at £609m, going someway to offset declining individual annuity sales.

Sales of capped drawdown reduced by 33.9 per cent to £48.7m - from £73.7m in 2013/14 - with the previous year’s figure apparently boosted by demand from savers wanting to defer their decision on whether to buy a lifetime income until after the implementation of the new Budget rules, so “sales naturally fell off as the new regime approached”.

Group chief executive Rodney Cook, explained that a widening of credit spreads, a fall in expected house price inflation, and a reduction in long-term interest rates all had a negative impact on the overall result for the year.

During the year, the group also incurred £19.4m of non-recurring costs - up from £7m during 2013/14 - mainly relating to the development of new products in response to the pension changes, which resulted in a loss before tax for the year of £29.6m - compared to a profit of £92.8m during the previous 12 months.

Total retirement sales of £1.14bn were down 9.9 per cent against a largely pre-Budget comparative period, while margins improved from 2.9 per cent in the first half to 3.3 per cent in the full year.

“The pension freedom reforms announced in the 2014 Budget and introduced in April 2015 have created uncertainty across the individual retirement income market, particularly in those channels where regulated financial advice is provided,” commented Mr Cook.

He added that the management team is working hard to ensure that any uncertainty caused by the proposed merger with Partnership Assurance Group does not affect their focus on service for customers and intermediaries.

“Our priority now is to ensure that we achieve the expected benefits of the proposed merger, while at the same time, not being distracted from the recovery in momentum we are beginning to see as a standalone business,” stated Mr Cook.

The deal, announced on 11 August, will accelerate Just Retirement’s existing strategy and is expected to deliver at least £40m of cost synergies in 2018, according to the results.

peter.walker@ft.com