The boom in the number of people cashing in their defined benefit pensions has boosted profits at two major UK life insurers, LV and Just Group.
There has been a huge increase over the past year in the number of people swapping their corporate pensions — which provide a regular annual income — for lump sums that can be used more flexibly. Since 2015 an estimated £50bn has been transferred out of defined benefit pension schemes according to Mercer, the professional services group.
On Wednesday, the two UK companies said they were benefiting from the trend.
LV, one of Britain’s biggest mutually-owned insurers, said some of the money coming out of defined benefit schemes was heading into its pensions drawdown products, which allow buyers to take income whenever they want.
“It is an area that we specialise in,” said LV chief executive Richard Rowney. “There is definitely growth in that.”
LV’s pensions drawdown sales grew by 30 per cent in the first half of the year, although not all of that was due to defined benefit transfers. The growth helped the company to report an 18 per cent jump in profits in its life insurance business, to £33m.
About 20-30 per cent of LV’s pensions business comes from defined benefit transfers, which is double the level of three years ago.
Just Group, which was formed last year from the merger of Just Retirement and Partnership, said some of the money from defined benefit transfers was flowing into its own annuity products.
“We’ve received very strong flows,” said Just chief executive Rodney Cook. “What people want is a better deal.”
The transfers helped to push up the average annuity size for Just. The company also reported a sharp jump in the volume of business it does with corporate pension schemes.
Overall, Just posted a 39 per cent increase in operating profits to £67m and increased its dividend by 6 per cent.
Barrie Cornes, analyst at Panmure Gordon, said Just had delivered: “another good set of interim figures with increasing profit and few surprises.”
The surge in defined benefit transfers has attracted the attention of regulators. The Financial Conduct Authority recently widened a probe into the issue, looking at the quality of advice given to people who are thinking of transferring their pensions.
LV’s Mr Rowney said the mutual’s deal with Allianz, announced last month, was due to complete at the start of next year. LV has agreed to sell 49 per cent of its general insurance business — where profits more than doubled in the first half of the year — to the German insurer for £500m.
Mr Rowney said the deal, which still requires regulatory approval, was “a marriage made in heaven.”