DB scheme invests in equity release provider

DB scheme invests in equity release provider

A defined benefits pension scheme is investing in equity release lender One Family, FTAdviser understands, a move it has been suggested that could pave the way for other company savings schemes to diversify where they invest to ensure returns for retirees.

Mutual One Family was created out of last year’s merger between Family Investments and Engage Mutual, offering Junior Isas, over 50s life cover, child trust funds and equity release lending.

A source familiar with the matter said One Family has recently attracted investment from a defined benefit pension scheme to put back into the market as equity release lending.

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The scheme in question was the Railways Pension Scheme, with this maiden move potentially paving the way for similar investments from other large funds looking to diversify.

A spokesman for One Family said as per industry practice for funding recipients, the company declined to comment.

The Railways Pension Scheme - managed by Railpen - also declined to comment, other than to say it invests in a “wide range” of assets.

Stuart Wilson, channel marketing director at equity release lender More 2 Life, said: “With the launch of One Family, it is great to see new types of funders entering this market, including DB pension funds, which will help accelerate innovation in this market.

“These new funders are not necessarily constrained in the same way as traditional life office funders are (eg. Solvency II) and that will open up new opportunities for product development in this market,” he added.

However Dan Baines, commercial director at Leeds-based retirement specialists Age Partnership, warned of the potential for nasty shocks for all parties in the event variable mortgage rates rise in the future.

Back in April, One Family announced its intention to enter the lifetime mortgage market during the first half of 2016 with a “unique product offering” available exclusively through advisers.

In May, it went live with two new lifetime mortgage products, an interest roll-up deal and a roll-up voluntary payment option, which allows the customer to repay 10 per cent of the initial loan each year, without incurring an early repayment charge.

Leading this venture is Georgina Smith - previously chief executive and marketing director at Stonehaven - who was appointed as the managing director of One Family Lifetime Mortgages.

Large insurance companies like Aviva, LV and the JRP Group fund their equity release businesses with investment from in-house annuity books.

Bernie Hickman, managing director for individual retirement at Legal & General, explained large annuity funds need assets to invest in which have strong, stable, long-term income streams.

“If it is good for an annuity fund, then it would also be sensible for defined benefit, however it needs to be well understood, so the investor would need to be close to origination to ensure good quality assets,” he added.

LV’s third quarter trading update last year showed equity release sales falling 46 per cent, from £84m to £45m year-on-year. It noted the fall was mainly due to fact the enhanced annuity business could not cover as a high a volume of loans, even while demand for equity release remained high.