Royal London is introducing a profit share for its unit-linked pension and drawdown customers, where around 1m pensions customers will benefit from the new arrangements.
From January next year, in addition to the existing with-profits allocations, a new ProfitShare amount will be awarded to any new customers buying a unit-linked pension plan, and to existing unit-linked customers who have set-up a unit-linked pension plan since 1 July 2001.
From the start of 2016 all new workplace individual pension and drawdown policies will share in profits, in addition to all existing unit-linked workplace, personal pension and drawdown policies taken out since 1 July 2001.
This includes all those who have been automatically enrolled into a workplace pension.
Royal London claims to be the first customer-owned provider to enable customers to share company profits this way. It noted that the regulators have no objections to this approach.
The mutual estimated that 600,000 existing pension customers will immediately benefit and over the next five years 400,000 new pensions customers will be eligible to participate in the arrangements.
In 2007, Royal London introduced profit sharing arrangements for its with-profits customers, and since then the savings of existing with-profits customers have been boosted by distributing profits of over £460m in total.
It explained that to ensure that existing with-profits policyholders are not adversely affected by the introduction of ProfitShare to customers with unit-linked pensions, the percentage of company profit available for distribution will be increased. With-profits members will also benefit from enhanced regular bonuses.
Royal London will then review its financial strength and performance at the end of 2016, and each subsequent year, to decide whether a ProfitShare may be awarded.
Customers will then qualify to receive any unit-linked ProfitShare allocation awarded, in April the following year, provided their plan is still in force, therefore the first reward will be made in April 2017.
Based on previous experience and future business plans, the firm’s aim is to award a ProfitShare of between 0.15–0.25 per cent of the unit-linked value of the qualifying customer’s plan.
Pension customers typically pay charges of between 0.3 and 1 per cent for UK pensions, depending on the type of product and the size of pension pot.
Royal London added that there is no guarantee that ProfitShare will be awarded every year, as this depends on the overall financial performance and on the wider financial markets. However, once a ProfitShare amount has been allocated to a qualifying customer’s plan it will not be taken away.
The ProfitShare does not count as a contribution and so does not reduce the level of tax free contributions that customers can make to their pension plan each year.
Chief executive Phil Loney said that the move sends a strong signal that the group remains a robust, independent, customer-owned organisation with customers’ interests at its heart.
“We are only able to offer ProfitShare because we are a member-owned company, committed to helping our customers meet their long-term goals.”
peter.walker@ft.com
