Just group PLC | Annual Report and accounts 2022
MARKET CONTEXT continued
their benefits. A proportion of the proceeds from these transfers are used to secure a guaranteed income by investing in a GIfL. This reduction in activity will be a drag on the positive growth factors above. 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. 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 review will start in Q1 2023 and the FCA aim to publish a report setting out their findings in Q4 2023. The FCA will have greater rule making powers under the future regulatory framework legislation. They have already announced that, to get ready for these changes, they intend to carry out a holistic review of the boundary between advice and guidance. 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, which may increase the size of our addressable market. 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 70 years old, has a house valued at around £345,000 and borrows 30% 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 2022 was 21% 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 Just Group expects Lifetime Mortgages to continue to provide an important, but reducing proportion of the investments it uses to back its Retirement Income new business liabilities. Homeowners aged over 55 are estimated to own property wealth of over £3.5tn (source: ONS). We estimate that the existing industry loan book including interest is just £43.4bn. In October 2022, following the September 23 UK Growth Plan announced by the Chancellor, a number of product providers adjusted and/or removed their products as the markets faced a period of significant interest rate volatility. This reduced the products available to customers. Since the November 2022 Autumn Statement many providers have returned to the market and the number of products available to customers has increased. Just Group introduced medical underwriting into a niche segment of the lifetime mortgage market some years ago and in 2021 extended it across the Just for You mortgage range. We estimate by collecting medical information and lifestyle factors from applicants, we are able to provide six-in-ten a lower interest rate, or for those who need it, a higher borrowing amount. This market disruption is revolutionising how lifetime mortgages are advised.
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. 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 2022 was 56.3% up from 54.2% in 2021 (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; • some people are transferring out of defined benefit pension schemes into DC pension schemes to take advantage of Pension Freedoms. When transferring, many people are choosing to secure a guaranteed income for life, by using some of the transfer value to purchase an individually underwritten GIfL; • 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; and • following the rise in UK interest rates, the level of income on GIfL has risen by around 50% in 2022. This has resulted in the volume of quotations from financial intermediaries and their clients for guaranteed income solutions to increase. The number of individual retail customers transferring their pension benefits into defined contribution pensions from their final salary (defined benefit) pension has reduced significantly in the last few years. This reduction follows a review and introduction of remediation measures by the FCA into the quality of advice provided to individual retail customers exploring transferring
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