UPDATE 2-Friends Life plans new products as UK pension reforms hit annuities

Fri May 9, 2014 8:41am EDT

Related Topics

* Friends Life says will miss a key earnings target in 2014

* Industry annuity sales set for sharp decline after budget reforms

* Shares fall as much as 4.3 percent (Adds CEO, CFO comments, details, share price)

By Richa Naidu

May 9 (Reuters) - Friends Life Group Ltd, anticipating a sharp decline in annuity sales, said it would create new investment products to woo retirees given greater choice by recent pension reforms in Britain.

The British life insurer, known until Friday as Resolution Ltd, said it would miss a key full-year earnings target after Finance Minister George Osborne unveiled reforms to the British annuities market in his latest budget.

Shares in the London-listed insurer fell as much as 4.3 percent on Friday morning.

Retirees were given more investment choices for their savings after Osborne's budget in mid-March scrapped a requirement forcing savers to swap their pensions for an annuity that pays out an income for life.

Many British pensioners are expected to opt for asset-based products. The reforms are scheduled to be implemented in April next year.

In an interim management statement, Friends Life forecast a 50-70 percent reduction in industry annuity sales in the medium term, excluding sales of annuities from vesting pensions with guaranteed annuity options.

"We're going to see a greater focus on more asset-based metrics," Chief Financial Officer Tim Tookey said on a call with reporters.

The company is developing new products that will allow retirees to keep their pension pots going while making an income from them. This is a much simpler version of Friends Life's existing income drawdown products.

Friends Life said it would miss its 10 percent full-year growth target for its value of new business (VNB) due largely to the impact of the budget on its annuities sales. The company's VNB metric is calculated by subtracting the cost of writing new products from the money that they bring in.

At its retirement income unit, which provides annuities, the value of new business fell 25 percent to 15 million pounds in the first quarter ended March 31.

"Clearly, the budget only had an impact on the last couple of weeks of March," Chief Executive Andy Briggs said on the call. "What we were seeing, even before the budget, is more and more customers were deferring their retirement decision."

Briggs said that, after the budget, 48 percent of the company's non-guaranteed annuity customers had chosen to stay with the product. Fifteen percent cancelled and 37 percent have asked for more time to decide.

Friends Life's stock has fallen about 14 percent since the reforms were announced on March 19.

The stock, like that of other British life insurers, has come under further pressure as a result of an investigation by the Financial Conduct Authority (FCA) into the annuities sector's treatment of legacy customers.

In what the head of Britain's Treasury Committee described as an "extraordinary blunder", the chief of Britain's financial watchdog prematurely let slip that the regulator was planning a review of the life insurance industry.

Briggs said Friends Life was awaiting "further clarity" on the FCA review.

The company's shares were down 1.8 percent at 297.4 pence at 1240 GMT. ($1 = 0.5899 British pounds) (Editing by Robin Paxton)

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