Profits climb at Legal & General despite slump in annuity sales

The Suffolk Life offices at 153 Princes Street, Ipswich
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The Suffolk Life offices at 153 Princes Street, Ipswich .

Insurer Legal & General today posted higher half-year profits despite seeing annuity sales plunge by nearly two thirds following recent pension reforms.

The pensions and investment giant became the latest firm to reveal the impact of the legislation in April allowing pensioners to retire without having to buy an annuity, which provides a life-long income.

It said new annuity sales slumped by 62% in the first half of the year to £1.3billion, close to the 66% fall reported by rival Standard Life yesterday.

Pensions giant Aviva posts its half-year results tomorrow and is also expected to report a fall in annuity sales.

But Legal & General said its pre-tax profit in the period rose 8% to a better-than-expected £547million, as it boosted its workplace auto-enrolment business under which employees are automatically signed up to retirement schemes at work. Shares lifted 2%.

The annuity reforms took the insurance industry by surprise when they were announced by Chancellor George Osborne in last year’s March Budget.

Legal & General said: “We expect individual annuities sales to remain subdued, with the market remaining challenging both in respect of the Budget reforms and in light of regulatory change.”

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The group said workplace savings assets jumped 38% to £13.1bn, adding that the number of smaller companies using its auto-enrolment plan grew by 25% during the first half of the year.

L&G also said it would also be providing defined contribution pensions schemes to 30 of the UK’s largest high street retailers by the end of the year.

The group said its defined contribution pension assets lifted 15% to £42.8bn over the first half, boosted by the rise in workplace savings schemes.

Its total assets under management lifted 12% to £714.6bn, including UK and US business.

Chief executive Nigel Wilson said: “Legal & General continues to deliver strong organic growth in the UK and the US from both our developing and established, market leading businesses.”

It added it saw further opportunities in the UK insurance market and has a strong pipeline of business in the second half of the year.

The firm said it was on track to deliver £80m of operating cost savings this year, bringing down its annual costs down to £1.17bn, although it will incur restructuring costs of £40m in the process.

Last November, L&G announced the closure of its office in Friars Bridge Road, Ipswich, with the loss of 140 jobs.

The group retains a substantial presence in the town where it also owns self-invested personal pension (SIPP) provider Suffolk Life, based in Princes Street.