Aegon fears £25m ‘charges cap’ hit as profits jump

Chief executive Adrian Grace said the impending upheaval in workplace pension charges was a kink in the road Picture: Contributed

Pensions minister Steve Webb claimed earlier this year that the UK government was the first administration to get an “iron grip” on pension fees when he confirmed that a 0.75 per cent limit on auto-enrolment schemes will come into force in April.

The decision was criticised by Royal London boss Phil Loney, who said some providers may see the introduction of a cap as an opportunity to fix their prices at inflated levels, but Aegon UK yesterday said the move would cost it between £20m and £25m a year.

Chief executive Adrian Grace told The Scotsman that impending upheaval was a “kink in the road” but he said he was confident of long-term uplift in  demand from corporate customers.

He said: “Like everybody else, we’ve got a number of schemes that are above the 0.75 per cent cap. We will comply with the UK government’s legislation, so in the short term there’s an income hit from that. However, in the longer term, this is an opportunity to upgrade our corporate book onto the platform to help grow the overall volumes.”

Grace’s comments came as the Edinburgh-based life and pensions provider reported an underlying pre-tax profit of £26m for the three months to the end of June, up from £20m a year earlier, helped by lower operating costs.

He said the firm has slashed £190m from its cost base over the past four years through a restructuring programme that has seen the Dutch-owned firm’s headcount more than halve to about 2,000 since the start of 2011.

However, he acknowledged that “some more tweaks” needed to be made to the group’s online platform – which has assets of £1.9 billion – to take advantage of added pension flexibility announced by the Chancellor earlier this year, and spending on technology is expected to rise during the second half.

Surprise reforms unveiled by George Osborne in March will remove the obligation for people to buy an annuity with their savings, but Grace said the upheaval was “music to my ears”.

He added: “I knew we weren’t reliant on annuities and we’d spent the previous 15 months building an income drawdown product, and our platform was designed for this new era of pension freedom.”

Aegon’s results were released as the Pensions Regulator revealed that four million people have now been placed into a workplace pension as the UK government’s retirement savings revolution rolls out.

Around ten million workers will eventually be put into retirement schemes as a result of auto-enrolment, and Aegon said it had won about 600 additional workplace schemes during the second quarter.

Rival Legal & General said on Wednesday that it would be resigning from the Association of British Insurers (ABI) by the end of the year because a large part of its business falls outside the trade body’s remit.

Grace said he was surprised by L&G’s decision and, while Aegon UK “periodically” reviews its membership of the organisation, “we’ll continue to be members of the ABI”.