For a man who has just announced a 50 per cent slump in pension annuity sales, David Nish seems to be in a remarkably upbeat mood as he surveys trading since the start of the year.
The Standard Life chief executive, who has been in the role since the start of 2010, believes Chancellor George Osborne’s surprise shake-up in retirement planning could play into the hands of the Lothian Road group, as the reforms may encourage more people to keep their money invested in the market instead of cashing in their savings to buy an annuity.
Speaking from his lofty viewpoint in the upper levels of London’s Gherkin skyscraper, where he has been presenting Standard Life’s first-quarter figures to the City, Nish’s attention is now turning towards the firm’s annual meeting next week.
The group’s fund management arm, Standard Life Investments, hit the headlines last month when governance and stewardship director Alison Kennedy spoke out at Barclays’ annual meeting to criticise a 10 per cent hike in the bank’s bonus pot, despite profits sliding by a third.
Nish’s own remuneration was just over £4 million for 2013, down from almost £5.6m the previous year, mainly due to the lower value of long-term incentive plans. Shareholders will have their say on Standard Life’s pay policy when they gather in Edinburgh next Tuesday.
Asked whether he expects the annual meeting to be a lively event, he laughs: “No-one has highlighted any fireworks to us. At the moment we’re planning for a broadly normal affair.”
The group’s operating profits fell 13 per cent to £751m last year, with the decline blamed on lower one-off gains compared with 2012, when the bottom line was boosted by the sale of properties in Canada.
Annuity sales – which made up about 6 per cent of operating profits in 2013 – have been sliced in half since March, when Osborne stunned the market in a move that some believe could spell the end for the products.
Although annuities provide a guaranteed income for life, they have been criticised for offering poor value for money, partly as a result of increasing longevity but also because yields on the UK government bonds used to back the products were pushed lower by the Bank of England’s quantitative easing programme.
As well as preventing people from being forced to buy an annuity, Osborne’s reforms mean those who have built up £30,000 across their pension pots will be able to take this as a lump sum.
Since the overhaul was announced, Nish says two clear trends have emerged: “One is that larger customers are deferring their decision to take out an annuity because they’ll have more drawdown flexibility after next year. Secondly, small pots tend to be cashing in rather than annuitising.”
He adds: “In terms of the overall business, it’s not that significant, but there will undoubtedly be lower profits coming in from annuity sales this year.”
However, he is quick to point out that some 70 per cent of the group’s pension savers have tended to buy their annuity from a rival provider when the time came to retire, so there could be a chance to retain more customers if they opt for “drawdown”, taking an income from savings that remain invested in the market.
Nish says one of the biggest highlights of the period was the acceleration in auto-enrolment – the Westminster initiative that compels firms to provide pension schemes for eligible staff.
“We did nearly 300 auto-enrolment schemes in the first quarter, having done 300 last year, so the pace is picking up.”
More than three million people have now been enrolled into a workplace pension scheme, and some 30,000 small companies are due to get swept up by the rules this year.
But few things stand still for long in the finance industry, and pensions minister Steve Webb last month confirmed that a 0.75 per cent limit for charges on the workplace schemes will come into force next year – a move that has divided opinion.
Royal London boss Phil Loney called the cap “bad economics” because he feels it will give some providers the excuse to lock in margins for investors instead of pushing down costs for savers.
Nish insists that the pensions market is “very competitive” and that Standard Life is well placed to meet the cap, which takes effect in April.
He adds: “From our viewpoint, less than 12 or 13 per cent of our business is priced greater than 0.75 per cent, so the transition should be quite straightforward and we don’t see any major profit dislocation from that.”
Job: Chief executive, Standard Life
Born: Barrhead, 1960
Education: University of Glasgow
First job: Chartered account trainee with Price Waterhouse
Favourite author: Max Hastings
Favourite music: Goo Goo Dolls
Favourite place: A ski slope on a sunny day
What can’t you live without? My iPad and a good wi-fi signal
Best thing about your job: Engaging with the people in Standard Life