Our announcement that we are introducing profit sharing for hundreds of thousands of new and existing pension customers from 2017 was greeted by some in the financial services community as a “gimmick” and derided for making life more difficult for advisers. Here is why I think these comments are wrong.
As a mutual provider we are owned by our customers and we distribute our profits to them, not shareholders. We always have done. What has changed is we have increased the number of customers who will receive a share. The number of with-profits policies has been decreasing for some time and by sharing our profits with unit-linked investors as well we believe we can build a bigger, stronger company that stays true to our customer-owned model.
Based on 2014 business results Royal London members would have received a bonus of 0.15 per cent on top of their underlying investment returns, at a cost to Royal London of £20m to £30m. This is a significant investment in our customers, not a gimmick. Our business plans support average bonuses of 0.15 per cent to 0.25 per cent in future.
We are still aiming to retain enough to reinvest in our business each year. That way we can continue to offer great products and service for the long term.
Like every other business, we cannot guarantee that we will make profits every year. So, we cannot guarantee to give a bonus every year and our illustrations do not include an amount for any expected future bonuses. However, if there are any years where the board decides they are unable to distribute a ProfitShare unit-linked customers will still receive the investment returns on their units – just the same as if ProfitShare had not been introduced.
We are more than happy for our proposition to stand next to any other offering on the basis of the product structure, charges and service we already offer. If advisers recommend our products we expect it to be on the back of these fundamental elements.
Royal London is not afraid to be different if it is in the interests of our customers. As Scottish Life we anticipated market developments by being the first to introduce offset commission and risk-rated, term-based default funds.
ProfitShare can only be offered by a mutual company. It is perhaps not surprising then that one of the most positive quotes came from another mutual, LV= “What Royal London has done is great for member-owned companies. We … have an ambition to do something similar in the future”.
Fiona Tait is pension specialist at Royal London