UK insurer Phoenix hails boost to retirement sector from high inflation

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High inflation has provided a boost to the UK’s retirement sector, as rising pay awards increase the amount that people are putting into their pension, according to FTSE 100 life insurance group Phoenix.

Official data last week showed UK wages grew at 7.8 per cent — the fastest pace on record — in the three months to July as workers reacted to increases in the cost of living by negotiating higher pay increases with their employers. Because many workplace retirement schemes are directly linked to salaries, any increase in pay leads to higher pension contributions.

“Counter-intuitively, as far as our sector is concerned, the UK economic environment is accelerating our growth, so we really are feeling positive about the market drivers of growth,” said Phoenix’s chief executive Andy Briggs in an interview with the Financial Times.

Briggs also pointed to a booming market for bulk purchase annuities, in which companies transfer their defined benefit pension schemes to insurers such as Phoenix, spurred by rising interest rates.

Higher interest rates reduce the present value of the schemes’ future liabilities, and so make pension transfer deals more affordable for companies. According to consultants Lane Clark & Peacock, there was a record volume of deals in the first half of the year.

Briggs was also optimistic about the prospect of more mergers and acquisitions activity. Much of Phoenix’s growth historically has come from acquisitions, adding closed books of life insurance business to its own operations. In the first half of the year, the company completed the £250mn acquisition of Sun Life of Canada UK, and Briggs expects more deals as inflation adds to life insurers’ costs.

His comments came as Phoenix reported abridged results for the first half of the year. New business net fund flows, a measure of the amount of new money that the company was given to manage, rose 72 per cent to £3.1bn.

Overall, Phoenix’s operating businesses generated £898mn of cash. That was down on the £950mn delivered in the same period last year, but the company said the figure for the full year would be at the top end of its target range of £1.3bn to £1.4bn.

The first-half dividend was increased by 5 per cent to 26p per share.

Phoenix has delayed the publication of a full set of accounts for the first half of the year until next week, blaming the “operational complexity” of the transition to the new IFRS 17 accounting standard.

Phoenix shares rose by just under 1 per cent in early trading on Monday.