UK budget fears clouding L&G shares, says CEO

By Iain Withers and Tommy Reggiori Wilkes

LONDON (Reuters) -Britain must not deter pension savers with tax changes in next month's budget, Legal & General CEO Antonio Simoes told Reuters, adding that uncertainty was souring investment as the UK's biggest investor battles to sell its own strategy.

Simoes, who has led the FTSE 100 giant since the start of 2024, said clarity was needed amid concerns taxes could rise for savers, the wealthy or businesses in UK finance minister Rachel Reeves' budget on November 26 to fill a fiscal black hole.

"I see a lot of pent-up demand for people to invest in the UK. But people are sort of waiting now," said Simoes, adding that any tax changes to pensions that put off savers would be "really concerning for the country".

Simoes said he also needs to do better at convincing investors of his strategy for L&G, which offers life insurance, pension and investment products. 

He vowed to improve performance at its capital-light asset management and retail units while dismissing concerns that demand was waning for L&G's biggest profit generator, buying pension schemes from companies. 

L&G will outline growth plans for its retail unit on Thursday and told investors it was on track to deliver group earnings growth this year at the higher end of its 6% to 9% range. Shares were flat in early trading.

UK FISCAL WORRIES WEIGH

Simoes, who has supported the government's economic policies since Labour won power last year, reiterated his backing for reforms such as easing planning laws, days after L&G committed 2 billion pounds ($2.68 billion) more to British housing and infrastructure.

He believes Reeves will find a budget formula, but said that investor concerns about Britain's economy were weighing on L&G's shares, which are down 4% since he started as CEO. 

"Some of this is linked to (the UK budget) and sentiment towards the UK. We tend to be a proxy for the UK economy," he said, adding that, as a big investor in government debt, L&G wanted to see "fiscal sustainability".

British rival Aviva has seen its stock rise more than 40% this year as it focuses on business lines demanding less in capital.

'SHOW-ME' PHASE FOR L&G STRATEGY

Simoes, a former HSBC and Santander banker, was a surprise pick to lead L&G. He has sought to simplify the sprawling 189-year-old group - selling housebuilder Cala and its U.S. insurance unit - while promising bigger returns. 

"What I need is to convince investors that the growth story is there... We're very much in the 'show-me' phase," he said, adding that he would like the share price to be higher and wanted more growth-focused shareholders on board.

L&G dismayed some investors by paring its dividend growth, but Simoes said its share price did not reflect plans to return 5 billion pounds including through buybacks over three years.

PENSION BUY-OUTS GROWING, NOT SHRINKING

Analysts are wary the lucrative pension buy-out boom could peter out, as planned UK reforms allow companies to unlock surplus cash themselves and the entrance of North American giants Brookfield and Apollo adds competition.

But Simoes dismissed this.

"If anything, it is accelerating... We're not seeing the (pension buy-out) market slowing down in any way," he said. L&G has secured 11 billion pounds worth of buy-outs so far this year, it said on Thursday.

L&G's institutional retirement arm, which houses pension buy-outs, will be its biggest profit contributor for years to come but will eventually peak as defined benefit schemes wind down, Simoes said.

To prepare, L&G is investing in its asset management and retail units, partly by offering higher-margin private market investment products including via a Blackstone tie-up.

A recent flare up of credit stress in the U.S. market was a sign of "exuberance" weakening lending standards in some areas, Simoes said, but added L&G and Europe were not exposed.

L&G is targeting margins of more than 10 basis points in asset management, after already raising them to nine from seven, Simoes said, amid fierce competition that has compressed industry fees.

Executives will lay out plans on Thursday for its retail unit offering annuities and defined contribution (DC) pensions.

L&G said it would target 4% to 6% annual growth in the unit's profit to 2028, a lower restated goal to account for the sale of its fast-growing U.S. unit.

It expects profit from workplace DC pensions to triple by 2028, and for the wider retail division to generate more fees and drive more cross-over business to asset management.

"In retail we've got this massive opportunity," said Laura Mason, the unit's CEO, adding UK reforms requiring schemes to merge into 'megafunds' would benefit providers like L&G.

($1 = 0.7451 pounds)

(Reporting by Iain Withers and Tommy Reggiori Wilkes; Editing by Alexander Smith and Joe Bavier)