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MGM Advantage to cut staff by a third after Budget annuities shock

MGM Advantage is preparing to make large scale redundancies in response to radical annuity reforms announced by Chancellor George Osborne last month.

The provider, which currently employs 250 people, will cut 80 roles linked to its annuity business in anticipation of a drop in sales.

MGM says the job cuts will be managed “where possible” through natural turnover and voluntary redundancy but there could also be compulsory redundancies.

The company has confirmed chief financial officer Simon Whitehead will exit “to focus on interests outside the business”.  He will be replaced by corporate development director Simon Smith.

MGM Advantage chief executive Chris Evans says: “It is clear the changes proposed in the recent Budget create many challenges for the industry. We have a great track record of responding to change, and it has become second nature to us over the last few years to adapt to opportunities that arise. 

“In the need to respond quickly and effectively, we will focus on what we do best, developing innovative retirement income solutions. Advisers and our customers will continue to receive support through this transformation of the at-retirement market.

“In the interim, we need to align our cost base to our new business plan for the year. Although I am personally deeply saddened by any redundancy, I have a responsibility to lead the business into the best possible shape, ready for the opportunities created by the current market turmoil.”

Just Retirement, which issued an annuity sales warning earlier this month, would not comment on the potential for future job cuts.

Just Retirement customer insight director Stephen Lowe says: “It is too early to predict how consumers and advisers will change their behaviour as a result of the Budget. We are keeping a close eye on progress and we will update the market as and when we make any firm decisions.”

Partnership director of corporate affairs Jim Boyd says: “It is too early to assess the impact of the Budget on consumers and advisers.

“Clearly we will need to a close eye on the situation and if we do make any decision we will be very clear about that.”

The Budget reforms, which come into effect from April 2015, will allow everyone to take their entire pension pot as cash from age 55 without being hit with a 55 per cent tax penalty.

Early estimates suggest overall annuity sales will fall by 75 per cent across the market as a result of the Budget changes.

MGM says it is working on a “radical” new proposition for the retirement income market in response to the reforms that will available early next year.

This will include developing blended retirement solutions, revising the investment proposition and making product changes to the investment-linked Flexible Income Annuity.

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Take The High Road 29th April 2014 at 2:35 pm

    …….estimates suggest overall annuity sales will fall by 75 per cent across the market…..!!!

    This estimate is grossly underestimated. I think its much more likely to be well over 95% over the coming year. Just look what happened in Australia when they changed their rules several years ago(at a time when annuity rates were substantially more than ours at present). In a country with a third of the size of our population, the total number of annuities sold over the following 12 months was just 6(six!).

    It’s goodby and good night to MGM, Just Retirement & Partnership unless they work quickly and innovate…fast!!

    http://www.theguardian.com/money/2014/mar/20/budget-annuities-pensions-george-osborne

  2. Today I attended a quite useful presentation from Prudential, setting out their views on what the future may hold as far as retirement income products are concerned. None of the presenters seemed to have heard of my idea, though they seemed to be quite intrigued by it and undertook to raise it with their lords and masters.

    There was general agreement that, for the PruFund, on the strength of its long-established track record to date, an average annualised growth rate, over the long term, of 5% nett of charges is eminently achievable.

    It was also agreed (albeit cautiously) that the cost of insuring against premature fund burn-out 25 years in the future shouldn’t be very costly, so one can only hope that something comes of it.

    Assured Income DrawDown using the PruFund (I would have thought) could well be an absolutely ideal, attractive and fit and forget alternative to all the risks, complexities and expense of ordinary Income DrawDown, not to mention even With Profits annuities. Isn’t this what the market’s crying out for? I very much hope that I’ve managed to sow a seed that will eventually bear fruit, so come on Pru, show us what you’re made of.

  3. These two comments above are brilliant and fascinating in their own way, but beautifully linked:

    The data on the annuities is startling and it will really focus the mind of these dinosaurs

    The idea of the ‘assured income fund’ is one example of the kind of innovative product that the market will have to come up with. At last.

  4. Thank you JR for your endorsement of my idea though, by way of a small correction, it wouldn’t be the fund that provides the assured income, it would be the product. Income DrawDown, as we presently know it, is fatally hobbled by the overriding concern (from a compliance point of view) that the level of income being drawn must never threaten the capital value of the fund ~ the eternal obsession with Critical Yield to avoid premature fund burn-out. This is the most limiting factor of ordinary Income DrawDown. For as long as the level of income from a given fund is shackled to Critical Yield and to preservation of capital, it can never be significantly better to that from a conventional annuity. People want from their pension fund maximum income within their lifetime. Dying without having extracted from it every possible penny of income, so that something remains to be left to their heirs is, I suggest, very much a secondary consideration.

    Assured Income DrawDown would be designed specifically to enable the retiree to spend, i.e. intentionally and quite specifically to burn out, his entire fund over his remaining (underwritten) lifetime, with an insurance element against this happening prematurely.

    That, as I see it, is the only way to get a better bang for every buck than an annuity or from ordinary Income DrawDown. A better (and sustainable) bang for every buck is what the market’s crying out for. No one could (reasonably) complain about poor value, for the simple reason that the fundamental premise of Assured Income DrawDown is to enable the retiree to get back every penny of his fund or, should he die sooner than expected, for whatever may be left to pass to his heirs or dependant/s (hopefully without a nasty tax charge). On the other hand, AIDD would provide security of income for life, however long that may turn out to be.

    I really hope that the big players such as Prudential, L&G, Liverpool Vic and Aviva come up with an AIDD product that can achieve these things. This will be the revolution in retirement income products. The Budget announcement and the government’s subsequent statement that it’s keen to encourage new investment-linked retirement income products have merely opened the door to AIDD. It’s now up to the industry to step up to the plate and to seize this unprecedented opportunity.

  5. Julian, the risk of providing the assurance would be considerable. What happens if the first few years of income are alinged with dips in the market. The componded effect of continuing to take income wihile the capital value falls means you would never likely get back to the original projections. There could also be another crash where we see 50% drops in equity values. I like the idea in principle, but from a provider point of view the cost of the assurance (and thier own margin) may be too costly to manufacture.

  6. I suppose that’s a consideration that would have to be factored into the overall pricing of the product, set against the PruFund’s track record, which is very strong and consistent. It’s a mixed asset, not a pure equities fund, so the effects of a downturn in equity markets worldwide probably wouldn’t have the catastrophic impact you suggest. Bonds, for example, might do very well in the face of a downturn in equities.

    Doubtless that risk is something that Pru would take into account in determining the level of income they felt able to offer. And remember, it’ll be an underwritten product, so 25 year sustainability would be the starting point for a male in good health kicking off at the age of 65. Anyone in less than fine health should get more. Also, the level of income should be reviewable at five yearly intervals to reflect any deterioration in health since inception or the last review.

    Anything potentially better than an annuity without the complexities and risks of ordinary Income DrawDown surely has to be worth investigating?

    But we’ll see. At least Pru are finally examining the viability of an AIDD product. If they can’t do it then probably nobody can, in which case I’ll have to pipe down.

  7. Julian Stevens 1st May 2014 at 7:45 am

    Another thing ~ according to the performance graphs that Pru showed us, their cautious PruFund has never suffered dips in value of significant magnitude to cause the problems you cite, Matthew and Pru are probably the masters of smoothed returns. For them, if anyone, a smoothed hurdle rate of 5% p.a. should be achieveable.

  8. Sascha Klauß 1st May 2014 at 9:53 am

    Julian, in that case, all you need to do is to explain to the insurer underwriting the guarantee that past performance /is/ actually a guide to future performance.

  9. Don’t they already do this with the Metlife secured income product?
    The states have had this method for years!

  10. Julian Stevens 1st May 2014 at 11:03 am

    MetLife’s offering was discussed. Apparently it’s expensive, as in not providing a particularly good level of income, but I’ve not looked at it carefully. for quite some time.

  11. Julian, are you suggesting something that would look like an annuity to a client (in terms of ‘giving up’ their fund in exchange for a guaranteed income for life), whilst the firm providing this guarantee, do so with a unitised with profits fund?

    If so, that appears to simply be an investment backed annuity, which do currently exist – I think the Pru offer them (the income choice annuity).

  12. Julian Stevens 1st May 2014 at 12:22 pm

    Though I like Prudential’s Income Choice Annuity, it gives no RoF on death (though I’m aware of Value Protected Annuities).

    In that it would be a fit’n’forget option (which I’m sure is the favoured option for most retirees), an AIDD would resemble an ordinary annuity but providing a higher level of income.

    Please keep the comments coming, as this is the first time the idea of an AIDD has attracted any significant amount of discussion and the more issues that can be raised and addressed the better.

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