LIFE and pensions firm Aegon UK has overcome a decline in annuity sales to deliver a rise in first-half earnings, boosted by a surge in business for its online platform.
Chief executive Adrian Grace said the Edinburgh-based company was “very optimistic” about its prospects, despite concerns raised by its parent company about the continued impact of sweeping industry reforms.
We see our future in building drawn-down productsAdrian Grace
Announcing the results today, the Dutch group said: “Aegon expects pension earnings in the second half of the year to face continued pressure from the fee cap and the pension flexibility regulation.”
Since April this year, firms providing workplace pension schemes used by employers for automatic enrolment have had to cap the charges within default funds to 0.75 per cent a year of funds under management.
The sector is also coming to terms with rules that mean retirees are no longer forced to buy annuities with their pension savings.
However, Grace said a product launched last month, Secure Retirement Income, had filled a “huge gap in the market” for people who did not want to buy an annuity but were still looking for a guaranteed income when they retire.
He said: “The problem with income drawdown is you don’t get that certainty of income in retirement – customers don’t want to gamble on the stock market but still want the benefits of increasing the size of their pot. This product gives them the best of both worlds.”
Secure Retirement Income is targeted at customers with nest eggs of £75,000 or more, while those with smaller pots were opting to take their savings as cash. Grace said traditional annuities still had a role to play for people seeking a simple product with guaranteed returns, “but the problem is you’re signing up to something for life, and we see our future in building drawdown products”.
On Tuesday, annuities provider Just Retirement struck a £669 million deal to buy rival Partnership Assurance in a move aimed at cutting costs and speeding up the launch of new products.
Aegon UK reported pre-tax profits of £53m for the six months to June, an increase of 10 per cent on a year ago, with assets under administration on its online savings platform more than doubling to £4.6 billion.
Grace told The Scotsman: “It’s unbelievable growth on where we were two to three years ago, and we continue to invest in the platform. This is a pretty good set of results and we’re very optimistic – it’s an exciting time.”
However, figures for the second quarter show earnings were down 4 per cent on last year at £25m, with new business sales falling 16 per cent to £190m. For the half year, new business was down 10 per cent at £389m.
Fellow Edinburgh firm Standard Life last month launched its UK-wide financial advice business – dubbed 1824 after the year the group was formed – after buying Pearson Jones, the wealth management arm of Skipton Building Society. Grace said that Aegon had no plans for a similar move, adding: “I’d rather build products for customers that they need in these times of pensions flexibility and invest my money there.”
Underlying earnings at the firm’s owner, based in The Hague, rose 1 per cent to €1bn (£713m) in the first half.
The company’s headcount in Edinburgh has grown by more than 150 compared with a year ago as it brought in more customer service staff and now stands at about 2,300.