Aug. 19 (Bloomberg) -- U.K. insurers may lose 1 billion pounds ($1.7 billion) of revenue because of new rules including a price cap on charges to manage pension funds, Royal London Group estimates.
Chief Executive Officer Phil Loney said companies had already written off at least 700 million pounds since the government introduced in March a 0.75 percent charge cap on auto-enrollment pension funds that takes effect next year. That includes 61 million pounds that Royal London expects to lose in future earnings, he said.
U.K. Pensions Minister Steve Webb originally forecast 200 million pounds of lost revenue for insurers over a 10-year period. Other insurers including Standard Life Group Plc and Aviva Plc have set aside a combined 310 million pounds to cover changes to the rules including the charge cap.
“The hit taken by insurance companies is turning out to be much bigger than was originally thought,” Loney said in a telephone interview from London. “Price capping is a new tool for the government and to get it wrong by a factor of five is a pretty big deal.”
Loney said insurers will eventually be forced to recapture the lost income from the employers providing the pension funds, with some firms already charging companies with smaller plans an extra 1,000 pounds.
“The pension charge cap will actually become a back-door tax on small and medium-sized employers,” Loney said.
Royal London today reported a 49 percent drop in its pretax profit “result” for the six months to June 30 to 136 million pounds from the year-earlier period, a statement showed today. The insurer’s investment unit, Royal London Asset Management, reported 1.3 billion pounds of net new external business inflows for the period.
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