Annual Report
fast read

Every generation deserves a prosperous retirement. We need imagination and innovation to meet the challenges of ageing.

Strategic aims

Maintaining leadership in pensions derisking and helping people manage their retirement funds.

Achievements

• Launched lifetime mortgages
• Over 40% share in LDI
• Won National Grid £12bn mandate
• Provide investment management for around 3,000 institutional clients

Turning the £1.4 trillion in housing equity into retirement income

It was estimated in 2014 that people over 65 in the UK were sitting on £1.4 trillion in equity in their own homes. 3.3 million homeowners aged over 55 have been looking to ‘rightsize’ to smaller homes, freeing up 7.7 million spare bedrooms for younger people who are struggling to find affordable homes to buy or rent. Yet the UK is struggling to finance elderly care. Since 2010, cuts in council-funded adult social care have totalled £4.6bn, or 31% in real terms of net budgets.

We want to give elderly people the choice of moving to a smaller ‘last time buyers’ home which can be more suitable in later retirement or staying in their own home freeing up some of their equity to pay for domiciliary care. In 2015 our new Home Finance business completed £201 million in new mortgages for people who wanted to increase their retirement income. The market is vibrant and it's possible that the total lifetime mortgage market could reach £5 billion a year by 2020. Our future strategy involves diversifying our distribution channels and aiming to continue to give increased value to consumers through competitive interest rates and reduced early repayment charges.

• More on Ageing populations (PDF 382KB)

Auto-enrolment is reversing the decline in pension saving.

Strategic aims

We’re driving down prices, giving better value to our customers and aiming to inspire market change.

Achievements

• 1.8m people in workplace pension schemes
• Number 1 in UK life insurance
• Won John Lewis partnership pension scheme
• Less than 10% of people who were auto-enrolled schemes chose to leave

Using the auto-enrolment model to improve welfare and social care

The success of auto-enrolment has shown that people are prepared to pay for a better financial future if it is made easy for them to do so and they receive tax incentives. Reform of the national insurance (NI) system could mean that people could contribute towards the funding of better elderly care.

If people are incentivised through lower NI contributions to save into an insured workplace fund to cover potential care costs, then the state could reduce the current £17 billion cost of adult social care spent by councils in England. People entering care homes wouldn’t need to deplete so much of their housing assets and could pass them on to their families.

In the same way contributory sickness and disability benefits could be replaced by a system that provides better benefits for people and helps the government reduce borrowing costs.

• More on Welfare reform (PDF 240KB)

Building homes for Britain. The UK needs to build 250,000 new homes a year to keep up wth demand.

Strategic aims

We’re changing the face of UK towns and cities using our slow money to invest in new homes and infrastructure.

Achievements

• Direct investments now £7.0bn across the group
• Regenerating Cardiff city centre
• 50% MediaCityUK stake in Salford
• £200m regeneration and 1,000 new homes in Bracknell
• First wind energy deal

The northern ‘powerhouse’

In Leeds, our first RIO development was to acquire a 50% stake in Thorpe Park Leeds, a £160 million 200-acre mixed-use business development. The joint venture with Scarborough Group is set to create 13,000 local jobs while potentially unlocking the construction of 7,000 new homes in the East Leeds area through the construction of the first section of the East Leeds Orbital Road.

Let’s build Britain

Our commitment to housebuilding includes all types of housing tenures. We invest in the ‘build to rent’ sector as well as building homes to buy for all age groups, from first time buyers to ‘last time buyers’. We're keen to see a greater supply of affordable homes and social housing. In Walthamstow we acquired an initial £25 million regeneration site to build and rent over 300 flats. In Salford we partnered with English Cities Fund for a £16 million scheme, part of the New Bailey development which will create a total of 90 homes located on the border of Salford and Manchester. Both developments comprise one, two and three bedroom flats.

The rent from the flats will provide an attractive long-term institutional investment return. We're investing with PGGM, a Dutch pension scheme in the development of private rental housing assets, which will be managed by our ‘Real Assets’ team. Providing long-term rental income will create a good match of annuity and pension liabilities, as well as real economic growth for the UK, creating much needed new housing.

• More on Creating real assets (PDF 298KB)

There are huge opportunities to continue building our successful investment management business internationally.

Strategic aims

We’re using our existing skills and expertise to build a world-class international asset management business.

Achievements

• International net flows of £9.5bn
• Significant growth in US index business
• New mandates in Japan, Taiwan and Korea
• Distribution agreement with Meiji Yusada in Japan

Entering flourishing Asian markets

Asian markets remain fundamentally attractive despite recent turbulent conditions in Chinese equity markets caused by weakening economic growth rates. Wealth in the Asia-Pacific regions represented around one third of the world’s economy and global finance at the start of 2015. There’s great potential as the region’s share of global AUM is only around 15%. Our strategy has been to focus on populous high-growth economies that have the lowest AUM penetration rates. In 2015 we took some first steps in Asia, by winning new investment mandates in Japan, Korea and Taiwan.

• More on Globalisation of asset markets (PDF 821KB)

We’re creating a digital strategy that empowers people to build secure futures.

Strategic aims

We’re using technology to help customers understand their financial options.

Achievements

• Retail insurance 79% straight through processing
• Digital investment platform with £77 billion of assets
• Re-platformed lifetime mortgage business

Micro-insurance in India First

In India we’re working with the government, who have an outstanding digital programme encompassing mobile technology and retinal scanning. We now insure the lives of five million people, helping many lower income groups buy affordable cover for their families.

• More on Digital (PDF 198KB)