Royal London profits boosted by group pension sales

Life and pensions provider Royal London, owner of the Scottish Provident brand, has posted a 12 per cent rise in ­annual operating profits, helped by strong sales of group pensions and income drawdown products.

Royal London chief executive Phil Loney

The mutual organisation, which employs almost half of its 2,800-strong workforce in Scotland, said new life and pensions business surged 39 per cent to £4.8 billion in the year to the end of December.

Chief executive Phil Loney said new business was boosted by a “particularly good contributions from group pensions and sales of income drawdown products”, which offer retirees an alternative to buying ­annuities, which have long been criticised for offering pensioners poor value for money.

From Monday, everyone over the age of 55 will be able to take their entire pension pot as a cash lump sum in a move described as the biggest shake-up of retirement planning for two decades.

Operating profits at Royal London – which in 2013 paid £219 million for the Co-operative Group’s fund management and life insurance businesses – rose to £220m for 2014, up from £196m the previous year.

Loney said: “The last year was marked by a very strong trading performance and a healthy increase in operating profit. We continued to see strong inflows into our investment management operations. 2014 saw significant inflows into our Equity Income, Cash Plus and fixed income funds.”

However, he added that European embedded value (EEV) profits from continuing operations before tax and profit share tumbled 53 per cent to £259m, reflecting “historically low yields” on government bonds and a £61m hit relating to a cap on workplace pension charges.

The UK government is introducing a 0.75 per cent limit on charges for auto-enrolment schemes, designed to compel employers to offer workplace pensions for their staff.

Although Loney has previously attacked the charges cap as “bad economics” because he believes some providers may see it as an opportunity to fix their prices at inflated levels, he said yesterday: “Royal London members who hold our workplace pension products will benefit from lower prices under the price cap, so the value has not been lost to members as a whole. The profitable growth of sales and market share across our product range provides a sound platform for future performance.”

He also pointed out that the mutual, founded in a London coffee shop in 1861, remains “well capitalised”, with surplus regulatory capital increasing to £3.4bn in 2014, from £2.7bn the previous year.

The group’s total amount of funds under management also grew, from £73.6bn at the end of 2013 to £82.3bn.