Royal London to share profits with its customers

Royal London to share profits with its customers

Royal London will be the first mutual life and pensions provider to share a portion of annual profits with its customers, with the first payments to be made in 2017.

The scheme will initially be geared towards about 600,000 existing customers, including both those who are still accumulating their pension pots and those who are in drawdown, and will expand to an estimated further 400,000 over the next five years.

The first payments, based on Royal London’s profits in 2016, are planned for April 2017. If the company were to base payments on last year’s results the amount paid out would be 0.15 per cent of the value of customer’s total investments. The provider aims for these returns to amount to between 0.15 per cent and 0.25 per cent.

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As a mutual, Royal London is able to distribute profits to its members in whatever way it sees fit, as opposed to publicly owned providers which are required to make any payments to shareholders.

Critics of the plan have been quick to remind Royal London’s members that the payments are not guaranteed and are based on the performance of the business as a whole.

Fiona Tait, pensions specialist at Royal London, recognised the concerns, but said that these payments would be on top of usual payments, so clients would not be left empty handed in any case.

Ms Tait also suggested that many of the critics have come from companies that are not mutuals, and so do not have the option to match the scheme and therefore dismiss it. She said, “The issue is that so few companies can issue these payments. It is different and people don’t like things that are different.”

Competition among providers to capture the business of those who have taken advantage of the pension freedoms has been fierce. Royal London hopes its profit-sharing scheme, which has been approved by regulators, may help to attract consumer interest going forward.