Royal London profits fall amid Brexit volatility and end of auto enrolment roll out

Royal London, the UK’s largest mutual insurer, announced today its pre-tax profits had fallen in 2018 after Brexit uncertainty hit the confidence of its customers.

The firm said its results compared unfavourably with last years in part because the first stage of the auto enrolment pensions roll out had come to an end, meaning a spike in sales in 2017 was not repeated last year.

The figures

Pre-tax profit fell to £351m for the year ending 31 December, 41 per cent down on £594m in 2017.

Meanwhile life and pensions sales were “strong” at £11.3bn, down slightly from £12bn, despite the end of the auto enrolment roll out.

Pre-tax operating profit hit an all-time high of £396m, up from £329 the year before, while its asset management business saw net external inflows of £4.1bn, up from £2.8bn.

Funds under management were flat at £114bn.

Why it’s interesting

This is chief executive Phil Loney’s final year at the helm of Royal London. Last year, it sold off its Channel Islands business, resulting in a net outflow of £2bn. The sale was in part why funds under management were flat.

Loney told Morning Wire: “People are getting more reticent about putting money into their pension or their ISA because of stock market volatility, Brexit uncertainty and worries the world economy is slowing down.

“In workplace pensions inflows are clearly going to increase because in April we have the next increase in contribution rates for both employers and employees so the minimum contribution goes up to five per cent for the employee and three per cent for the employer.”

CDC pension roll-out

Loney also criticised a new, Dutch-style pensions scheme which was given the government's blessing to enter the market earlier this week, which bids to give savers more stability by pooling risk.

The so-called Collective Defined Contribution (CDC) scheme, which is widespread in Denmark and the Netherlands, will be offered to Royal Mail workers first, before a planned roll-out to other companies and sectors. CDC schemes seek to offer less risk than defined contribution schemes, while putting less of a burden on employers than gold-plated defined benefit schemes.

The CDC pension roll out was "something of a damp squib," he told Morning Wire "The whole argument with CDCs is you smooth out the returns over a period of time to give people greater certainty.

"And what’s emerging just doesn’t look scalable. There’s no facility for the scheme to hold some capital to help smooth the returns."

"I don’t really see CDC as something that’s going to have a massive impact in the private sector."