Since the introduction of auto-enrolment in 2012, and pension freedoms just two years later, mutual life, pensions and investment provider Royal London has been actively growing its flexible pensions products, and overall business offering.
With the slow death of annuities, businesses such as Royal London have had to continue to adapt to be able to survive in an ever-changing and increasingly regulated pensions environment.
In doing so, businesses have had to deploy different strategies along the way. But what roads precisely have led to the successes of providers such as Royal London?
Pensions sea change
During his seven-year tenure, Mr Loney (pictured) says he has witnessed “a sea change in the long-term savings industry”, and “a massive shift in the responsibility for saving for the future” that has been very much driven by AE and the pension freedoms.
Mr Loney – who announced last month that he will be standing down by the end of 2019, once a suitable replacement is found – has driven many significant changes at the insurer, campaigning on a range of topical pensions issues, to become a leading voice in the industry.
We positioned ourselves well for what we could see coming, and used our position as a mutual to try and engage people with their pension.Phil LoneyHe explains: “As an organisation that is run in the interest of its members, we had to think about how we were going to contribute to the biggest social change in pensions, which was AE.
“So we chose to get ourselves really immersed in it, deciding to use the opportunity in AE to become a really big player.”
By the time pension freedoms came along, Royal London was already well positioned, he says. “And in two years, drawdown became the retirement income vehicle of choice, and we continued to improve our product and investment proposition to became a major player.
“We positioned ourselves well for what we could see coming, and used our position as a mutual to try and engage people with their pension.”
Key points
- The pension freedoms have had a huge impact on pension companies.
- In 2014, Royal London rebranded to bring all of its brands under one umbrella.
- Chief executive Phil Loney is stepping down some time this year.
Mr Loney also led Royal London’s transformation from a collection of individual brands acquired a decade ago – such as Ascentric and Fundsdirect in 2007, and Phoenix Life Assurance in 2008 – to form a single brand.
In 2014, Royal London rebranded to its iconic purple pelican logo in a bid to bring all the big businesses – Scottish Life, Scottish Provident, Bright Grey and Royal London Asset Management – under the Royal London umbrella.
In the past four years, the company has doubled in size with top three market share positions in intermediated protection, pensions drawdown, funeral plans and 50+ life assurance.
Since joining in 2011, Mr Loney has overseen 154 per cent growth in assets under management to £117bn at the end of June 2018 from £46bn.
Meanwhile, total life and pensions new business sales quadrupled to more than £12bn in 2017 from under £3bn in 2011.
Industry wake-up call
In terms of what has driven its success, there is no doubt that the 2014 Budget announcement introducing pensions freedom and choice – which shook the industry to its core – had a major impact.
Indeed, Claire Trott, head of pensions strategy at Technical Connection, says the pension freedoms were “a wake-up call to any providers who were just happy with the status quo” and who were “providing the minimum options to their members”.
She explains: “Although the legislation didn’t force providers to offer all the options the pension freedoms introduced, it soon became apparent it was something that was expected, while pressure from the government, press and other financial institutions would have forced many to reconsider.”
Members today expect to have access to all the retirement options and appear more willing to move to get what they want, she says, adding that this is clearly partly due to the increased engagement in pensions that the freedoms have created.
“[But] there are still some schemes that don’t provide full freedoms for various reasons, and members needs to be aware of this because it can make a significant difference,” Ms Trott adds.
According to Mike Barrett, consulting director at the Lang Cat, companies such as Royal London are at the top of the list when it comes to those that have best adapted to the changes.
Most of its competitors would kill to have the product set that Royal London has, and the spokespeople it has, so it’s quite a powerful combination.Mike BarrettHe says: “Royal London’s Governed Portfolio range is doing really well and meeting the needs of a lot of customers, and receiving a lot of support from financial advisers as a result.”
Another thing that set it apart was the recruitment of Sir Steve Webb, former pensions minister and current director of policy at Royal London.
Mr Barrett continues: “It seems to me a business that very quickly saw the opportunity that pension freedoms were going to represent, and so it built products and recruited in a very confident and capable spokesperson.
“Most of its competitors would kill to have the product set that Royal London has, and the spokespeople it has, so it’s quite a powerful combination.”
Looking ahead
Mr Loney says the pensions industry has made great strides, but is still faced with a situation where if it does not make further progress there will be a future crisis.
So to encourage consumer engagement with pensions, a key focus for Royal London over the next couple of years will be to complete its programmes of technological change, costing £600m to implement. This also includes the replatforming of its Ascentric platform, which Mr Loney confirms is coming to its final stages.
He says: “We’ve already put entirely new systems into finance and actuarial, we’re building new IT into our protection business and life insurance business, and we’re also doing that to pensions.
“We’re quite a long way through it and making good progress. Being able to give customers more digital services, and to be able to embrace new technologies like machine learning, is going to be really important going forward.”
In this respect, Mr Barrett predicts Royal London will become one of the key market leaders.
He explains: “Royal London’s pension flows as at August 2018 were around £3.5bn – up 23 per cent compared with the previous year, and that puts it at the same level as the top-selling investment platform for the period, which was AJ Bell.
“Prudential is even above that, closer to £6bn. This shows the demand for simpler, stand-alone solutions – away from a platform and which hopefully also give protection if markets become volatile – is definitely there.
He continues: “The question moving forward will be ‘can it actually give you protection if markets are falling?’, and if markets keep dropping as they have been, we’ll know the answer fairly soon.
“People are always going to want security around retirement, and if the products can deliver that, then they’ll do really well.”
Victoria Ticha is a features writer at Financial Adviser
