Royal London profits almost half after £61m charge cap hit

Royal London, owner of the Scottish Provident brand, has reported a 48 per cent drop in profits.

The results for the mutual organisation, which employs almost half of its 2,800-strong workforce in Scotland, stem from the £61m hit following the Government’s decision to cap auto-enrolment charges at 0.75 per cent.

The provider’s 2014 results, published today, report a pre-tax profit of £159m, almost half the £306m profit it made in 2013.

It says profit was “significantly impacted” by a £61m one-off cost relating to the introduction of the Government’s charge cap on DC schemes.

Its 2013 profit figure was also boosted by its acquisition of The Co-operative Group’s life, pensions and asset management business.

However he group has posted a 12 per cent rise in annual operating profits, helped by strong sales of group pensions and income drawdown products.

Pre-tax operating profit, excluding exceptional items, was posted of £220m for 2014, up by 12 per cent from £196m in 2013.

It said new life and pensions business surged 39 per cent to £4.8 billion in the year to the end of December.

Total life and pensions new business premiums were up by 23 per cent at £4.8bn, compared to £3.9bn in 2013.

This was driven by a 49 per cent rise in intermediary pensions new business premiums, from £3bn in 2013 to £4.5bn.

Intermediary protection business was down by 22 per cent, however, from £436m to £338m.

Royal London says the rise in pension volumes is down to auto-enrolment business and “the strength of our individual pensions and drawdown propositions”.

Royal London’s platform, Ascentric, increased its assets under administration by 22 per cent, from £7.3bn at the end of 2013 to £8.9bn.

Chief executive Phil Loney said: “The last year was marked by a very strong trading performance and a healthy increase in operating profit.

“New business performance was strong with particularly good contributions from group pensions and sales of income drawdown products. We anticipate that these will continue to be areas of growth for some time to come.

“Our strong trading profit performance was offset in the short term by the impact of the Government’s decision to introduce a price cap and other alterations into auto-enrolled pension schemes, and the impact of even lower yields.”

Royal London has also commissioned an independent expert to review its with-profits offering and plans to launch a new product in 2016.

It said: “One of the challenges we face is that the number of customers choosing traditional forms of with-profits products has been declining so fewer customers benefit from our profit share each year. At the same time the number of our members who are not with-profits policyholders has been increasing.

“We want to bring things back into line by extending the scope of our Profit Share so that more of our customers share in our successes and hope to achieve this by launching a new form of with-profits product next year.”