AnnuityNov 29 2017

Firing Line: Chris Knight

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Firing Line: Chris Knight

According to Chris Knight, chief executive of L&G's retail retirement division, the company was forecasting a 75 per cent drop in its annuity business. Mr Knight said: "That's what happened to us. [We went] from £1.2bn [in a] full year before pension freedoms to £300m last year."

What is perhaps more surprising is that this part of the market is starting to grow again. Mr Knight said: "This year in the first half results we were 96 per cent up on last year. We thought the market might disappear altogether, like other companies. We hung around to see what happened.

"It's been a rollercoaster, we're in the upswing at the moment. There are 15m people in retirement and 1m people coming in – there's a lot of demand for it."

Like many, Mr Knight sees annuities as still having a place in retirement, but as part of an overall plan.

He said: "As an example, of all the annuities we set up in 1997, 78 per cent of those are still paying; 20 years later, the vast majority of people are still receiving income. Our oldest customer is 107. That's a level of recurring income for a long time.

"Going forward, the state pension is not really enough to give you an enjoyable retirement. People should be thinking about the minimum they would like as an income when they're old, and when they're not too old to do anything about it.

"If you're 80, there's no way way you can go and work in McDonalds. [The question to think of is:] 'Would I like two times state pension to purchase that minimum, where I don't need to worry?' Buy one or two times state pension income and then you can relax and really enjoy the rest of your money.

"So we're using the annuities to provide that guarantee for yourself and using drawdown for the rest, which is money for the family and some money for treats."

Annuities have been particularly unpopular for pensioners in the past few years, due to low conversion rates and an inability to change one's mind once the initial decision has been taken. Because of this, Mr Knight is encouraging people to take out fixed-term annuities. This is a rapidly growing sector of the business, although from a lower starting point.

Mr Knight said: "One of the things that people worry [about] is you can't change your mind. The thing about fixed-term annuities is you get a capital sum at the end of it and, for example, at 65 or 70, you'll get a small income for the next five years."

As an alternative to annuities, L&G is getting into equity release. In 2015 it bought equity release provider New Life and sales have grown from £200m to £600m in 2016. The equity release market is growing from £1.5bn in 2015 to £2bn in 2016 and is forecast to be £3bn in 2017. L&G's sales in the first half of 2017 are double the same period 12 months earlier.

Mr Knight: "In the end people have done fantastically well in the property market; going forward people are going to be retiring later and buying houses later and still have significant property.

"The reality for people is that in order to have a decent life in retirement, they will have those assets in retirement. You're getting money to have a better life and you're getting to live in the property you want to live in."

At present, L&G offers lifetime mortgages with an interest-only roll-up at the end of the term, but it is considering mortgages with the ability to pay interest during the term of the loan. It has also teamed up with Co-op Bank to provide to its customers equity release products for those with interest-only mortgages.

Mr Knight said: "It's quite a process taking out a lifetime mortgage; you are getting into a substantial financial transaction and we need to make it easier to take small amounts of money."

Another question is whether people should use their property and equity release to pay for social care, when perhaps this is something local authorities should pay for. Should people be losing large parts of their stored wealth to pay for everyday living costs? 

Mr Knight said: "People are happier and healthier in their own homes and that really cuts down the cost on society for people who have care needs."

An actuary by training, Mr Knight starting out in consulting and working overseas in Asia and Africa. He has been with L&G since 2009 and moved into his current role, earlier this month, after being managing director for about a year. From the new year, he will report to L&G chief executive Nigel Wilson.

Above all, as one of the country's biggest life offices and investors in the stock market, Mr Knight is mindful of his company's social responsibilities. He said: "For me personally, the fact that we pay insurance claims and provide investments to customers and use that money to invest in the economy and in our country, by investing in infrastructure, means we want a great country with a good economy."

Melanie Tringham is features editor of Financial Adviser

Career highlights

Nov 2017: Legal & General, chief executive, retail retirement

Jan 2017: Legal & General, managing director, retail retirement

2015 – 2017: Legal & General, chief financial officer, retirement division

2012 – 2015: Legal & General Assurance Society, finance director

2009 – 2012: Legal & General Assurance Society, finance director, international