Just Group plc | Annual Report and Accounts 2024
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Market Context continued
INDIVIDUAL RETIREMENT INCOME MARKET Guaranteed Income for Life (“GIfL”) products are bought by individual customers to convert some or all of their accumulated pension savings into a guaranteed lifetime retirement income. The solution provides people with peace of mind from the security of knowing the income will continue to be paid for as long as the customer and, where relevant, for as long as they or, typically, their spouse, lives. In the UK, GIfL products traditionally offered an income payable without reference to the individual’s health or lifestyle, and were differentiated only by reference to a limited number of factors such as age, premium size and, prior to 31 December 2012, gender. An individually underwritten GIfL takes into account an individual’s medical conditions, personal and lifestyle factors to determine their life expectancy. People who are eligible and purchase an individually underwritten GIfL typically achieve double-digit percentage increases in income compared to purchasing a GIfL which is not individually underwritten. CURRENT MARKET AND OUTLOOK Pension customers are encouraged to compare the GIfL offer provided by their existing pension company to those offered on what is the open or external market. The Financial Conduct Authority (“FCA”) requires pension companies to provide customers with a comparison to the best income available from the external market alongside the quotation from the incumbent firm. All firms are required to provide a medically underwritten comparison where a customer is eligible. These FCA rules to strengthen competition and deliver better outcomes for customers has provided new opportunities for the Group as we compete in the open market when these customers choose to shop around; this is our addressable market as we do not have an existing base of pension savings customers. The open market share of the total GIfL market for 2024 was 76% up from 70% in 2023 (source: Association of British Insurers (“ABI”)). Continuing developments are driving growth over the medium term in our addressable market: • the structural drivers of growth in the retirement income market are strong and assets accumulating in defined contribution (“DC”) pension schemes are projected to increase consistently over the next decade. This growth arises from an increase in the number of people joining workplace pension schemes as a result of the successful state auto-enrolment policy and the increase in contribution rates implemented in 2018; • growth in DC pension assets also arises as companies close down final salary or DB pension schemes and offer their employees DC pensions instead; • many life and pension companies are choosing to put in place broking solutions to offer their pension savings customers access to the best individually underwritten GIfL deals in the market. Some are choosing to transfer their obligations to provide a guaranteed GIfL rate to their customers, to an alternative product provider or broking solution. This grows our addressable market and provides customers with better outcomes. Our HUB group of companies is providing many of these corporate services; • the market is currently benefitting from the return of UK long term interest rates to more normalised levels. The rate of income on GIfL has risen by around 50% compared to 2021. This has resulted in the volume of quotations from financial intermediaries and their clients for guaranteed income solutions increasing; and • new solutions are being introduced to the market to provide financial advisers with more sophisticated options to blend a guaranteed income producing asset with other investments to deliver improved outcomes for their clients.
REGULATION AND LEGISLATION There are a number of changes in-flight from legislators and regulators that when implemented may increase the size of our addressable market. • In March 2024, the FCA published findings on how the retirement income advice market is working and whether consumers are receiving appropriate advice on meeting their income needs in retirement. The FCA concluded improvements must be made by firms who were not currently meeting the standards required to ensure people receiving a retirement income were treated differently to those people who were in the accumulation, or savings phase. Retirement income advice remains an ongoing focus for the FCA and they will be carrying out further supervisory work in this area. • In August 2023, the FCA set out the basis for a joint review of the Advice Guidance Boundary with the HM Treasury which forms part of the UK government’s Edinburgh Reforms. Their aim is to understand where existing regulation may carry a disproportionate burden, and to explore ideas to reduce that burden, whilst continuing to provide the right level of consumer protection. In their November 2024 update, the FCA has stated they will focus on helping people navigate the complex decisions about pensions and are consulting on high-level proposals for targeted support in pensions, which would allow firms they regulate to provide support to pension savers in a new way. This may, over the medium term, result in more people receiving help and guidance in how to use their pension savings. • In July 2023, the FCA introduced a new duty, known as the Consumer Duty, that sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first. The duty introduces a new consumer principle that requires firms to act to deliver good outcomes for retail customers. The outcomes relate to (i) products and services; (ii) price and value; (iii) consumer understanding; and (iv) consumer support. LIFETIME MORTGAGES A lifetime mortgage (“LTM”) allows homeowners to borrow money secured against the equity in their home. The amount borrowed is repayable together with accrued interest on the death of the last remaining homeowner or their move into permanent residential care. This product can be used by retirees to supplement savings, top up retirement income or to settle any outstanding indebtedness. Our typical lifetime mortgage customer is around 69 years old, has a house valued at around £360,000 and borrows 29% of the property value. Just Group is a leading product provider of lifetime mortgages. Our HUB Financial Solutions business is a leading distribution business providing consumers with regulated advice on equity release solutions from across the market. CURRENT MARKET AND OUTLOOK The LTM market experienced a period of stagnation and decline in 2023, as the market and consumer demand adjusted to higher interest rates and the impact of increased inflation. This resulted in providers and distributors reshaping their operating models and risk appetites to reflect a higher interest rate environment. The market returned to year on year growth in the final quarter of 2024. There has been an increase in the number of on-sale products, which provide customers with a range of options to ensure their individual needs are met. Many people are positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family.
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