By 2050 around a third of the European population will be over 60. And the ratio of working people to retired people is expected to fall from four to one in 2010, to less than two to one by 2050. Governments will struggle to provide adequate state pensions, healthcare and elderly care services. Employers will find it even more difficult to fund costly defined benefit pensions for their employees. Our retirement solutions are designed to help companies and individuals across a number of global locations shift the burden of providing for the elderly away from the State towards the private sector.
SOLVING THE PENSIONS CRISIS?
In the UK, auto-enrolment means that we expect to see around 11 million new people saving for retirement. Two million people have already joined up. Pension deficits fell, as global stock markets rose, fuelled by quantitative easing and economic recovery.
PURCHASE OF LUCIDA
“The purchase of Lucida will benefit their customers, giving them the comfort of knowing that their pensions will be paid by a long standing, trusted and well-capitalised business.”
KERRIGAN PROCTER, MD LGR
In June 2013, we announced the completion of the purchase of Lucida, a company specialising in pensions buyouts. While the acquisition price was around £149 million, we will be able to release capital and reserves, giving a net purchase price of £85 million.
The purchase not only shows our commitment to building our market leadership in retirement solutions, but also shows our determination to accelerate our organic growth with bolt-on acquisitions.
Since June 2013, we’ve seen a smooth integration of Lucida’s business into our own. The full implementation timetable is on track and we have successfully merged Lucida’s policy data into our own computer systems. We’ve also boosted LGIM’s assets with a further £1.4 billion of internally managed funds.
A PARTNERSHIP THAT DELIVERS VALUE FOR MONEY
The success of auto-enrolment is a great example of how Government and the insurance industry work together to help raise the living standards of pensioners. Our market leadership not only drives our own business success, but also means that we can help to ensure that those saving for retirement are treated fairly and charged reasonably. We’ve taken the lead in governance, transparency and charges, championing a commitment to keep charges made to employees choosing our default fund for enrolment to no higher than 50 basis points. The success of our auto-enrolment offer to companies means that we have nearly 25% of all UK auto-enrolled schemes, with over half a million new customers.
WORKING TOGETHER TO BENEFIT CUSTOMERS AND SHAREHOLDERS
Our distinct advantage is that we bring together skills and experience from many different business areas to provide a comprehensive retirement and risk transfer service for both UK businesses and individual customers. Businesses can benefit from our workplace savings, group protection, asset management and group annuity teams working closely together. Auto-enrolment in pensions has helped drive growth in companies taking our group life and group income protection products. For companies with DB schemes, our LDI products help them match investments to liabilities. And where funding DB costs becomes especially difficult, we work with employers to facilitate a switch to DC or to use our buyout, buy-in or longevity insurance products to manage future annuity costs.
GROWING OUR ANNUITY BOOK
We’re now the only UK provider to be a market leader in both individual annuity and bulk annuity products. This leaves us less reliant on individual annuities, a market which reduced in size in 2013. As well as the purchase of Lucida, we reinsured New Ireland’s annuity book giving us around 600 million euros under management. We also completed the UK’s largest ever longevity insurance transaction, securing £4.9 billion of BAE Systems’ pension scheme risk.
SOLVING THE CARE CRISIS
Currently there are around 850,000 elderly people receiving care in their own homes and about 300,000 in care homes. The number of people needing care is forecast to increase by 30% in the next 10 years, with the UK’s over 85 population doubling by 2030.
The coalition government’s expected new funding framework, to be introduced in 2015 to 2016, caps a portion of care costs and intends to allow some people to defer care home costs until death. However, someone living three years in a care home and self-funding might spend over £100,000. Our solutions include owning care homes, looking at stimulating the building of specialist housing for the elderly and developing more flexible retirement income plans.
We believe that in the future, equity release can also help. Ultimately, we believe that people need to start funding care from a much earlier age, using the success of auto-enrolment as a model.
PROVIDING BETTER ANNUITIES
We’ve been working with the Association of British Insurers (ABI) to help improve the value for money that consumers get when turning pension savings into annuity income and we welcome the regulatory focus on improving annuity sales. We already encourage people to shop around for a better annuity, using guidance or advice services to make sure the right product is bought. 75% of our individual annuities are sold in this way.
HELPING UK BUSINESSES MEET THEIR LIABILITIES
LDI also shows how our businesses work together to help companies deliver pension benefits to employees. Because the ultimate aim is to ensure that companies can afford to pay pensions to scheme members, LGIM provides investment funds, including risk hedging schemes, while LGR can enable schemes to use buyout, buy-in and longevity insurance to manage risk.
In its 2013 LDI survey, KPMG said that: “Legal & General are now the largest LDI manager in the UK.”
PROVIDING DIGITAL RETIREMENT SOLUTIONS
‘Prism’, launched in July 2013, is a groundbreaking online monitoring, analytics and risk management platform. Prism provides online asset and liability analytics for pension scheme trustees, employers and their advisers. It helps them describe the risks in their defined benefit strategy, supports our range of funds and services and helps pension schemes de-risk by either moving towards a low-risk investment strategy or considering a buyout solution.
In Workplace pensions, we aim to move towards a fully digital platform. We’ve built an efficient front end, which integrates seamlessly with employers’ payroll systems. We’ve also made progress in creating a digital platform for employees where they can change funds online and view online benefits statements.
Our most recent success is the enhanced annuity platform (EAP), which provides instant live annuity quotes. This platform allows potential annuity customers to receive an individual quote based upon their own health and lifestyle criteria.
Increasing the scale of our retirement business increases both the amount of longevity risk that we take on as well as credit risk from the assets we hold to meet future obligations. As well as our capabilities to evaluate and price for longevity, we actively use reinsurance to control aggregate exposures. Experts in LGIM and LGC manage our exposures to credit risk.