Aegon reveals surge in pension pot withdrawals
Rule change sparks surge in activity from savers with less than £10,000
AEGON UK is seeing growing interest in pension drawdown since new rules came into effect but most people withdrawing cash pots are those with less than £10,000.
Adrian Grace, chief executive of the insurer, said there had been a “surge” of activity from customers since the changes allowing cash to be withdrawn from money purchase schemes came into effect in April.
In the second quarter of the year Aegon said the value of drawdown c o nt ra c t s had double d to £650 million.
But Aegon, which employs about 2,300 people in Edinburgh, said more than half of the cash requests it has received came from people with savings of £10,000 or less.
Mr Grace: “If you have a £10,000 pension and you work out what that will buy you as an annuity it will probably get you a packet of cigarettes or a couple of pints of beer.
“I can understand people with lower-value pots withdrawing their funds and paying off some debt or going on holiday or buying a new car. I think that is very reasonable behaviour.
“The pleasing thing for us is people with larger pots are staying with us. Nobody is cashing in and going out and buying a Ferrari.”
Mr Grace said Aegon had launched a new product, named Secure Retirement Income, combining elements of an annuity and cash drawdown to provide consumers with different options.
He said: “Unlike an annuity they can always choose to move into another investment.
“It is a unique product that is causing a lot of excitement in the market as I think it fills a gap.”
In spite of the changes Mr Grace said the company’s own research suggests about 70 per cent of those approaching retirement still want some form of guaranteed income.
Aegon’s growing push into digital pension management shows no signs of letting up with 150,000 customers now on its in-house software platform.
Mr Grace believes offering the ability to manage investments through smartphones or tablets will help to increase the numbers of people actively involved in their own retirement planning.
He said: “Only 11 per cent of people are digitally engaged with their pension. People have to start engaging with long-term savings to build a retirement pot.
“All we are trying to do is build the tools so people can engage whether that is online or through their financial adviser.”
Aegon has also launched an analytics product, called Smart Governance, to let its business customers more easily see which segments of their workforce are on track for retirement and which ones may benefit f r om fur ther information.
Net inflows to its software platform, which is open to financial advisers, corporate customers and consumers, were £1 billion in the second quarter, taking assets on it to £4.6bn.
Mr Grace said: “This time last year we were at £1.9bn. This is pretty fundamentally a shift in our whole approach to move as much as we can onto the platform.
“For us it is starting to pay dividends and we are pretty excited about the digital future we have created.
“We are seeing far, far more going on to the platform than anything else we are doing in the business so the decision we took [to build it] is clearly the right one.”
In the three months to the end of June underlying earnings before tax were £25m, down slightly from £26m in the same period of last year and behind the £28m recorded in the first quarter of this year.
Mr Grace said: “We’re pleased with the quarterly earnings which remain significantly ahead of the levels we were seeing a couple of years ago.”
For the hal f- y e ar pre- t ax underlying earnings were up from £48m to £53m.
Asked about the outlook for the rest of the year Mr Grace said markets are likely to remain volatile. The impact of the price cap on the fees charged for workplace autoenrolment schemes will also start to come through.
He confirmed Aegon has a number of product launches in the pipeline for the coming months.
He said: “We will have a few surprises as we get through the second half of the year and we start to evolve the platform further.
“That investment won’t stop. We will embrace pension freedom and optimise our position within it.”