Aegon boss eyes future of online pensions as profits dip

The Dutch firm, which employs 2,000 staff at Edinburgh Park and another 400 throughout the UK, believes it has identified a gap in the market and described the low proportion of people accessing pensions online is an “enormous opportunity”.

Aegon’s impressive online performance was unveiled in its third quarter underlying earnings of £19 million, a 21 per cent fall on the previous quarter and below the £22m of a year earlier – although the year-to-date performance is £72m against the £70m of 2014.

Mr Grace said numbers would “not increase dramatically” during planned growth, adding: “Our costs are under control but the challenge as government keeps putting in price caps and lopping off lumps of my income is to keep profit where it needs to be.”

Speaking on the opportunities the firm has identified online, Mr Grace said that with only 11 per cent of people currently managed their pensions online, way below the levels in banking and general insurance, he was expecting this to change in time and soon become a “tidal wave” that he wants Aegon to be on the crest of.

“The digital interface is the future, though we are going to have bumps in the road as we go through the journey”, he said.

Aegon said life earnings halved to £10m due to reserve strengthening, adverse claims experience, and selective de-risking of the investment portfolio to improve the capital position.

Pensions income more than doubled to £9m, but only thanks to a £10m gain from “policy adjustments”, as expense falls were outweighed by the fall in markets, but also by the implementation of a cap on workplace pension fees.

Lower margins depressed fee revenues by 10 per cent to £101m, although revenues from the platform rose by 81 per cent. Net income more than doubled to £44m due to a £25m hedging gain.

Mr Grace said: “The bottom line is we are a little bit off at this time, but you have got to think this is a 30-year business.”

Aegon said growth of the platform accelerated “as planned” for 2015, as a further 47,000 new customers, including upgrades, were added to the platform in the third quarter to take the total to nearly 200,000.

The net inflow rose to £900m, and reached £5.3 billion.

Mr Grace said: “The average size of new advised individual policies on the platform is about £64,000, more than double the amount for the traditional book of pensions and bonds.”

Drawdown assets on the platform were up 88 per cent on the previous year at £800m.

But on the surge in drawdown sales reported by rivals since the advent of pension freedoms in April, Mr Grace said: “There is a big risk that people rushed into the drawdown product in June, just before the Chinese stock market disappeared, and they have now bought the wrong product.”

He said Aegon’s new guaranteed annuity, the first available on any platform, was modelled on a product that had been hugely successful in the US and this year’s sales estimates had already been doubled.

Mr Grace added: “The platform makes us more efficient and our capital-light, fee-based strategy continues to drive assets under management and our results.”