Aviva sees pension shake-up as major growth opportunity

The new chief executive of the York-based savings business said the forthcoming workplace pension reforms, including auto-enrolment and the introduction of a national employment savings trust, represent a big growth market for Aviva.

David Barral and Andrew Moss, the group chief executive, met with Pensions Minister Steve Webb last week to discuss how the new legislation will be introduced.

From October 2012, employers must enrol all eligible workers into a workplace pension and make the minimum level of contributions.

Mr Barral said Aviva is “hugely supportive” of auto-enrolment and expects the take-up of group pension schemes to rocket from 45 to 70 per cent.

He added that employers are very keen to upgrade schemes, which “will lead to quite a big influx of money for Aviva”.

A Government spokeswoman said: “The Pensions Minister often meets with industry experts to discuss proposals for reform.”

Aviva estimates that the average pension pot in the UK is £28,000, which it says is not enough to secure a good income in retirement.

Mr Barral said consumers have three choices; they must “save more, work longer or retire poorer” and added that “the Government has to start thinking about how to incentivise people to save”.

Aviva is planning to increase its use of social media such as Twitter and Facebook to promote the idea of saving more among younger people.

Mr Barral also wants savers to shop around when they buy an annuity to find the most competitive income.

He said: “Not enough people understand that when they save in a company for a pension they don’t have to take the annuity. We have been working with the Association of British Insurers to improve the take-up.

“If it goes elsewhere, the pension fund manager loses that element of profit. It’s not in their interest to promote it to customers.”

Aviva calculates that annuity customers could be losing out on more than £750m by not shopping around with their pension pot when they reach retirement.

Shares in Aviva have lost nearly a third of their value in the last six months as the sovereign debt crisis in the eurozone intensifies fears of a double-dip recession.

But Mr Barral said he was “very confident” about the group’s strength and capital position.

Last month the group reported a five per cent rise in operating profits to £1.33bn in the half year to June.

Mr Barral said that although Aviva’s stock tends to get “swept up” with the banking sector, the group “does not have the same exposure that the banks do”. He was less bullish about the outlook for the economy. He said: “I don’t see an early end to this at all. It’s a very difficult time.

“Fundamentally, we still think we are going to grow through this period... because companies are setting up group personal pension schemes and we have auto-enrolment coming in.

“We are the market leader in annuities. We are benefiting from the baby boomer generation coming through. There is a growing number of customers coming up to retirement age and they need to be looked after. The prospects for the business are strong, despite the fact that it is a difficult economy.”

Before promotion to chief executive in June, Mr Barral oversaw the rebranding of Norwich Union as Aviva, which started in 2009, the year of recession.

“We did seriously think about whether it was the right thing to do,” he said, regarding the timing.

“I’m really glad we did. There is a parallel today. There is a temptation for companies to hide when the going gets tough when actually we believe this is a time when customers need us most.”

The moment i was asked to be chief

David Barral remembers the moment this summer when he got the call from Aviva’s group HR director.

It was just after Toby Strauss had resigned as chief executive of the pensions and savings business.

“It went along the lines of ‘David, there is good news and bad news. The good news is we have decided that you are the man for the job. We have discussed it with Andrew Moss and Lord Sharman, the chairman. The bad news is that Mark Hodges resigned this morning’.”

The news of UK CEO Mark Hodges’ departure to join Towergate Insurance shocked the insurance industry.

To many, he was seen as a natural successor to Mr Moss and had spent most of his working life with Norwich Union, the forerunner to Aviva.

Mr Barral said: “There was a lot of change with Toby and Mark leaving, after 19 years in the business.

“Mark just decided it was time for him to do something different. Toby and Mark going was pure coincidence. But I was well groomed and ready to step into that role.

“The transition to me has been pretty seamless. The company in terms of performance has not missed a beat. It’s about the strength and depth of the broader leadership team and the stability that this organisation has.”

Aviva’s Life business, based in York, has 7m customers. Its target market is Middle Britain, designing products to help people save, particularly for retirement, to protect themselves and their families.

Mr Barral’s ambition is for the company to become the most recommended in the market.

It has been reaching out to families by offering products like free life cover to new parents lasting 12 months.