Advisers have branded the extension of Royal London’s ProfitShare scheme a “gimmick” that will make it more complicated to compare pension providers.
The mutual is to introduce profit sharing for hundreds of thousands of new and existing pension customers from 2017.
It has offered its ProfitShare scheme to with-profits policyholders since 2007 and has now extended the arrangement to 600,000 existing customers.
All new individual pension and drawdown policies, as well as unit-linked workplace, personal pension and drawdown policies written since 1 July 2001, will benefit from ProfitShare, the firm says.
This includes all auto-enrolment members.
Rowley Turton director Scott Gallacher says: “It will probably make it a bit of nightmare, it will make pensions comparison difficult. It’s one of those factors that it’s easy for them to offer, they can control how much they give back, but you’re making a decision about picking a pension provider on something they can turn off at will.
“Something for nothing is always good but we’re supposed to be moving to full transparency so it’s not ideal.”
Wingate Financial Planning financial planning director Alistair Cunningham says: “It seems a bit of a marketing gimmick. Cost is a factor we consider when making comparisons and recommending where someone switches to.
“The problem with that sort of bonus is because it’s not guaranteed you have to disgregard it. The simplest option is just to lower charges and then that’s a guaranteed feature.”
Overall, Royal London says policyholders, including with-profits customers, will receive a greater proportion of company profits as a result.
Over the last nine years the mutual has paid out £466m to with-profits customers through the scheme.
Royal London pension specialist Fiona Tait says: “Based on last year as an example, Royal London paid £60m to legacy with-profits policyholders. This translated into an uplift for them of about 1.2 per cent – which is the average achieved since 2007.
“If we had ProfitShare policies last year, then we estimate that customers would have received a profit share of 0.15 per cent. This would have cost a further £20m to £30m to the business while having a positive impact on those qualifying customers. So this is a significant investment that Royal London is making for our future customers and members.”
Royal London estimates 600,000 existing customers will be impacted immediately as well as 400,000 new customers over the next five years.
At the end of 2016, and each subsequent year, the mutual will review its financial strength and decide whether a ProfitShare is awarded.
Customers will receive their bonus the following April as long as they have not terminated their policy. The extra funds will be put into a separate account but follow the same investment strategy as the main plan.
Royal London says it aims to award between 0.15 per cent and 0.25 per cent of the unit-linked value of the customer’s qualifying plan.
LV= head of distribution Steve Lewis says: “What Royal London has done is great for member-owned companies. We have the same structure and the advantage is that you can pass profits and other benefits back to the membership.
“We don’t currently do this for all unit-linked policy holders but we probably have an aspiration to do something similar in the future.”
Royal London chief executive Phil Loney says: “As a mutual company we want to ensure that our customers and members have the best outcomes and experience, and we wanted to find a way for those members of Royal London who don’t invest in our with-profits fund to also share in the profits of our business.
“Our innovative approach will significantly increase the number of Royal London customers who will see their savings increase through sharing in our profits and will further enhance our already strong competitive position in the pension and drawdown markets.”