Royal London chief executive Phil Loney has attacked the UK government’s cap on charges for workplace pension schemes as “bad economics” as he unveiled a 52 per cent jump in annual profits at the Scottish Life owner.
Loney also insisted it would take “some very seismic negative changes” for the company to withdraw from Scotland if voters opt for independence in September’s referendum.
The mutual group, which is phasing out its Scottish Life and Scottish Provident brands over the next two years, has more than a third of its 2,900-strong workforce north of the Border.
Pensions minister Steve Webb last week confirmed that a 0.75 per cent limit for charges on workplace schemes will come into force from next April and claimed the coalition was the first administration to get an “iron grip” on pension fees.
But Loney – a vocal opponent of the plans – told The Scotsman that some providers may see the introduction of the cap as an opportunity to fix their prices at inflated levels. He said: “If you’re a politician, it looks like good politics if you’re being really tough on pension companies, but it’s bad economics. Charges for pensions are falling and you would expect that, with auto-enrolment expanding the market hugely in the next few years, that there will be economies of scale.”
More than 2.5 million people across the UK have been placed into a company pension under Westminster’s auto-enrolment initiative, which compels firms to provide schemes for eligible workers, and some 30,000 more companies are due to get swept up by the rules this year.
Loney said: “If the market’s really competitive, you would expect charges to fall further. The great risk with the government introducing a charge cap is that it becomes a price floor rather than a price ceiling. Instead of seeing charges dropping as the market expands, the fear is that some of the bigger shareholder-owned companies will trap better margins for their investors.”
His comments came as Royal London posted an operating profit of £346 million for 2013, up from £228m the previous year, lifted by a £150m one-off gain from last year’s acquisition of the life insurance and fund management arms of the Co-operative Group.
“The boost to our profits comes from the fact we can run the book at a lower cost base than before, and the benefits of that get shared between the Co-op policyholders and Royal London members,” Loney said.
Buying the Co-op businesses swelled Royal London’s customer base to 5.3 million and added £20 billion to its assets under management, which stood at £74bn at the end of December.
The insurer also revealed that eligible with-profits policyholders will receive a “mutual dividend” of £81m, equivalent to an extra 1.6 per cent added to their investment returns.
Although he remains critical of the government’s charge cap, Loney welcomed the wider overhaul of the pensions industry that the Chancellor revealed in last month’s Budget. The shake-up will remove the obligation for people to buy an annuity with their savings, while those with pension pots of up to £30,000 will be able to take these as a cash lump sum.