Standard Life has seen sales of its annuity products sliced in half following Chancellor George Osborne’s surprise shake-up of the pensions industry, but insisted today it remained well placed to benefit from the ever-changing regulatory landscape.
The firm told investors that rules forcing employers to provide pension schemes for their staff helped assets rise during the first quarter, but analysts said the growth was “subdued” by tough comparisons with the strong start to the year it enjoyed in 2013.
Chief executive David Nish said: “Standard Life has been shaped and positioned to benefit from evolving customer needs and regulatory changes. This, combined with our investment expertise and focus on providing value for our customers, is driving demand for our propositions across the retail, workplace, institutional and wholesale channels.”
More than three million people across the UK have been placed into a company pension under Westminster’s auto-enrolment initiative, and some 30,000 more companies are due to get swept up by the rules this year. Standard Life got 285 extra schemes up and running during the first quarter, adding 60,000 members to its books.
However, Nish said that annuity sales, which account for about 6 per cent of the Edinburgh-based group’s profits, have slumped by about 50 per cent since the Chancellor announced in March that he was scrapping rules that force people to buy an annuity with their pension savings.
The reforms mean that retirees will no longer be forced to buy annuities, which offer a guaranteed income for life but have been criticised for offering poor value for money.
Nish said: “While it will be some time before long-term trends become clear, the negative profit impact of the changes will reflect the relatively small size of our annuity business.”
His comments came as Standard Life reported a 1.5 per cent increase in assets under management to £247.8 billion for the first three months of the year, higher than the £245.6bn figure that Deutsche Bank had pencilled in.
Analyst Oliver Steel said that Standard Life Investments (SLI), the group’s fund management arm, had delivered a “stand-out performance”, with third-party inflows of £2bn, just ahead of the broker’s £1.9bn forecast.
However, Societe Generale had been looking for a figure of £2.6bn and it was “clear the group is writing larger amounts of lower-margin business while forgoing margin-rich annuity business”.
In March, SLI struck a £390 million deal to buy Glasgow-based rival Ignis Asset Management as it seeks to broaden its third-party client base. The takeover is expected to be finalised in the summer, subject to regulatory approval.
Analysts at Bank of America Merrill Lynch said: “Standard Life is well placed to retain pension assets and capture savings flows as a result of the changes announced in the recent Budget. The company is the leading provider of drawdown and its Global Absolute Return Strategies (Gars) fund is a strong investment solution for drawdown, in our view.
“The acquisition of Ignis also looks a shrewd acquisition; we believe that significant cost-saves are available as Ignis is integrated into SLI. However, we don’t see quite enough for a buy rating at this time.”