12 | Just Group PLC | Annual Report and Accounts 2023
MARKET CONTEXT continued
• In 2020 the FCA announced they intend to complete further work on the suitability of advice and associated disclosure (known as “Assessing Suitability Review 2”). The review aimed focus on initial and ongoing advice to consumers taking an income in retirement. This work was paused and in January 2023 the FCA announced their intention to complete a thematic review assessing the advice consumers are receiving on meeting their income needs in retirement. The FCA aim to publish a report setting out their findings in Q1 2024. • The FCA will have greater rule making powers under the future regulatory framework legislation. 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. 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 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. The typical lifetime mortgage customer is around 71 years old, has a house valued at around £360,000 and borrows 23% of the property value. People are becoming increasingly positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family. The compound annual growth rate of the lifetime mortgage market between 2011 and 2023 was 10.7% and this has attracted new providers to enter the market in the last few years. 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 As predicted in last year’s Annual Report, the LTM market experienced a decline in 2023, as the market and consumer demand adjusted to increased interest rates and the impact of increased inflation. The fundamental drivers of growth over the medium term remain intact and we forecast the market will return to growth towards the end of 2024. The primary drivers of growth are: • households wanting to top up their retirement income to improve their, or their family’s standard of living in later life; • people with outstanding mortgages who are entering retirement and require a solution to settle the debt with the existing mortgage company; • strong demographic growth. The number of people aged 65 and over is forecast to increase from around 13 million today to around 17 million by 2040; and • strong investment in advertising which results in people becoming aware of LTMs, combined with people becoming more disposed to using some of their housing equity.
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, typically, for as long as 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. In March 2018 the Financial Conduct Authority (“FCA”) introduced rules requiring pension companies to provide customers with a comparison to the best income available from the external market alongside the quotation from the incumbent firm. These requirements were subsequently strengthened and from January 2020 all firms are required to provide a medically underwritten comparison where a customer is eligible. This has provided new opportunities for Just 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 2023 was 70% up significantly from 56% in 2022 (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 defined benefit 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; • following the rise in UK interest rates, the level 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.
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