12th May 2014 12:46
LONDON (Alliance News) - Just Retirement Group PLC Monday unveiled a reorganisation to cut costs, as the specialist life insurer grapples with the fall in demand for individual annuities since government plans were unveiled in March to give people in the UK more freedom over their pension pots.
Just Retirement shares have lost about 40% of their value since Chancellor of the Exchequer George Osborne unveiled proposals under his 2014 Budget that removed the effective requirement on individuals to buy annuities.
The annuities provider said Monday the reforms, which were announced on March 19, had a "materially negative impact" on the last two weeks of the quarter.
Just Retirement said its reorganisation will produce annual cost savings of GBP14.0 million in its next financial year, but will result in "one-off costs" of GBP5.0 million in the current one.
"There will be some redundancies," Chief Executive Rodney Cook told journalists, adding that the GBP14.0 million savings isn't just staff costs.
Just Retirement said an additional GBP5.0 million of investment will be made over the next financial year, adding that it is making the spend in order to "respond to the changing market place" in the wake of the Budget.
"Activity levels are at around half of pre-budget levels. That is not good, but it?s not nearly as bad as the forecast of the death of the annuity industry," said Cook, adding that the life insurer will "do without" the word 'annuity' in the future, instead opting for "guaranteed income for life."
"We have made the word annuity sound like something bad, when clearly when offered in an open and competitive market is good for customers," Cook said.
Just Retirement said its reorganisation and additional investment will ensure that it is ready with "appropriate" new product and distribution offerings in April 2015 when the new regime begins. Cook said Just Retirement is "rapidly adapting" its model to the new environment, noting that operating conditions have become "much tougher" since the Budget.
"Our flexibility is exemplified by our recent launch of a one-year fixed-term annuity. This will help customers retiring now to make use of the new rules when they are introduced next year, and further product launches will be announced in due course," the CEO said in a statement.
"We expect distribution shifts to give us access to a growing proportion of retirees, particularly if the Government's guidance concept is successfully implemented," Cook added.
In its third-quarter statement, Just Retirement said individual underwritten annuity sales increased to GBP287.5 million in the three months ended March 31, compared with GBP214.3 million in the corresponding quarter of 2013. Total annuity sales rose to GBP338.1 million, from GBP230.6 million a year earlier, helped by GBP37.0 million in defined benefit de-risking sales.
Overall new business sales rose by two-thirds, amounting to GBP497.3 million, due to "buoyant" demand for lifetime mortgages, as well as the comparative quarter in 2013 being hit by regulatory changes.
"We are encouraged to see Just Retirement taking pro-active steps in the face of a paradigm shift in the UK annuity market. The reduction in costs should mean the adverse impact on new business margins is constrained," Nomura's Fahad Changazi, who has a 'buy' on the shares and a 205 pence target price, said in a note to clients.
Just Retirement shares were Monday quoted at 160.90 pence, up 2.3%.
Separately, rival Partnership Assurance Group PLC said it has launched a so-called enhanced choice annuity, which guarantees income for life but with the ability to cash in after 12 months.
This product is aimed at the 50% of 65-year olds people with a health or lifestyle condition who may traditionally have bought an annuity but don?t wish to fully commit to purchase prior to the introduction of the new pension regime.
By Samuel Agini; [email protected]; @samuelagini
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