Oct 31, 2014
Executives
Luke Savage - CFO Keith Skeoch - CEO, Standard Life Investments Paul Matthews - Chief Executive, UK & Europe Business
Analysts
Andrew Sinclair - Bank of America Merrill Lynch Ashik Musaddi - JPMorgan Greig Paterson - KBW Ben Bathurst - Nomura Mark Cobley - Dow Jones Alan Devlin - Barclays Andy Hughes - Exane BNP Ravi Tanna - Goldman Sachs Lance Burbidge - Autonomous Research Marcus Barnard - Oriel Securities Oliver Steel - Deutsche Bank
Luke Savage
Thank you, Abby and good morning, ladies and gentlemen. Thank you for joining us to discuss our 2014 Third Quarter Interim Management Statement.
I am Luke Savage, the new CFO of Standard Life presenting our market update for the first time. I'm joined today by Keith Skeoch, the Chief Executive for Standard Life Investments and by Paul Matthews, the Chief Executive of our UK and Europe business.
I will briefly take you through the highlights of today's announcement and after that, we'll be happy to take questions. Now as I'm sure you know, during the quarter we announced the proposed sale of our Canadian businesses.
So today, we’re focusing on the continuing operations, excluding Canada which we're treating as discontinued, although I will come back to that a bit later. So overall, we've made good progress in the first nine months of the year, increasing assets under administration from our continuing operations to some £290 billion, that has been driven by good net inflows or £4.3 billion, together with the acquisition of Ignis Asset Management.
Those two in combination have helped to drive the fee revenue of the Group up by 13% year-on-year. In our UK business, we've demonstrated our strength in adapting to the continually evolving markets.
For example, we have continued to meet the auto-enrolment needs of employers and we've secured over 1100 new workplace pension schemes so far this year. Since auto-enrolment launched in 2012, we've enrolled over 500,000 new customers, now our UK retail and corporate businesses administer over £100 billion of assets.
Turning to Standard Life Investments, we continue to deliver excellent investment performance in what have been volatile market conditions which together with net inflows and the acquisition of Ignis helped to increase third party assets under management from continuing operations to some £158.9 billion. Our multi-asset propositions, including GARS continued to perform well in the challenging markets and our MyFolio offering has remained popular, attracting over £1.1 billion of net flows since the start of the year.
The growth is also reflected in our geographic reach with 67% of third party net inflows now coming from outside the UK. If we move now to our discontinued operations, in early September we announced the sale of our Canadian business and we do expect operating profit in Canada to be lower than the £155 million previously expected.
That reflects planned management actions which we will no longer be pursuing before the completion of the sale. However, the locked box arrangement that was part of that transaction does mean that the sale price for shareholders is fixed at C$4 billion, fully hedged into sterling at an equivalent of £2.2 billion.
At the same time as announcing the sale, we also announced that Standard Life Investments has entered into a global collaboration agreement with Manulife. That agreement is expected to more than treble Standard Life Investments assets under management distributed by Manulife within three years and to deepen its existing, highly successful relationship with John Hancock, the U.S.
arm of Manulife. The sale itself is progressing well and we received overwhelming shareholder approval at the beginning of October and subject to regulatory approval, we expect that sale to conclude in early 2015, then post completion, we plan to return £1.75 billion of capital to our shareholders.
Finally, on our position as at the end of the third quarter, our balance sheet remains strong with an estimated IGD surplus of £3.3 billion and that's after reflecting the acquisition of Ignis Asset Management. Before turning to questions just a quick word on the outlook, over recent weeks, we’ve seen some significant market volatility.
While ongoing weakness in investment markets may impact the short term pace of both asset flows and revenue growth we’re nonetheless well placed in our chosen markets. So we look forward to the future with confidence as we continue to capitalize on our global investment expertise and our strong distribution capabilities.
I'll now hand back to the operator and Keith, Paul and I will be happy to take your questions.
Operator
(Operator Instructions). Our first question today comes from Andrew Sinclair from Bank of America.
Andrew, your line is now open.
Andrew Sinclair - Bank of America Merrill Lynch
I have three questions, if I may? Firstly, on the Ignis Absolute Return Government Bond Fund, it's seen some significant outflows over the last few weeks since the resignation of several members of the team.
I wonder if you could update us on flows on this and on the other Ignis third party funds. Second, also on the Absolute Return Government Bond Fund, it's had some pretty poor performance in the weeks leading up to the departure of the team members.
It looked like the biggest drawdown in the history of the fund, just wondered if you could give us some reasons for this and on recent performance. And finally just wondered if you could quantify the P&L impacts of both the £2.3 billion of low margin outflows and also on the Absolute Return Government Bond Fund outflows?
Thanks.
Keith Skeoch
Okay. In terms of an update on flows, we have seen about £2 billion coming out of the ARGBF fund following the departure of some of the fund managers.
Some of that is, obviously, a reaction to those people who are minded to remove their funds when the manager leaves. I think you're quite right Andrew; performance was poor in August and again in September rolling into early October that was largely the result of probably an aggressive short duration position, a position in the TIPS market which has been unwound.
It was a fund that had leverage in it. That leverage has been taken down as part of making sure we’ve sufficient liquidity in the fund.
We have about £2 billion left in the fund it was £2.9 billion, I think when we took it over. No evidence of any collateral damage elsewhere on our flows either in terms of other Ignis third party assets or indeed, in terms of our funds.
In sharp contrast to that, GARS has been doing what it said on the tin over the summer. As far as the P&L impact is concerned, this is an IMS call and I guess we'll give you an update on that at the time of the prelims.
Operator
Our next question today comes from Ashik Musaddi from JPMorgan. Ashik, your line is now open.
Ashik Musaddi - JPMorgan
So just a few questions, first of all on Ignis can you give us a run-rate of Ignis life fund outflows? In this quarter you reported £700 million; is this a good run-rate, going forward, as well?
Secondly, can you just remind us also what is the earnings' accretion from Ignis? If I remember correctly it was £50 million pretax from the inflows, plus £50 million is what you were expecting as synergies, so that's £100 million pretax.
So will that change a lot with this ARGBF outflows, if you can give a bit more color on that? And thirdly on your outlook, can you just give a bit more color on outlook in terms of what the impact could be on flows especially I'm talking about corporate flows or retail flows in UK?
Thank you.
Keith Skeoch
Okay. As far as the rundown of Phoenix, its pretty much bang in-line with expectations and I'll get somebody to get back to you on what that profile looks like.
But there has been no significant change in profile on that since we did the deal. In terms of the outlook for flows looking forward, on the SLI side we've got the ARGBF numbers coming out.
If you look in the press notice, we're pointing out that there is that low margin, very low revenue bps on the funds choice platform of about £1.5 billion to come out. And there has been a lot of volatility in equity markets which I think will probably slow the volume of wholesale business.
I would still expect us to be a major beneficiary, because this is precisely the kind of conditions that GARS was created to deal with. Pass across to Paul for a moment in the UK, as far as the Ignis P&L is concerned, integration proceeds well.
We remain on track. I wouldn't change the guidance of us getting to a 45% EBITDA margin by the end of -- I think it was 2016.
Paul Matthews
Ashik, on the long term outlook, I suppose it's very much stay as we go as we're doing everything we said we would do. We're capturing quite a large percentage of the workplace, probably around 20% of the workplace market today.
Our retail business, our IFA franchise, the business coming on Wrap continues to be pretty steady and good. We're doing everything we said we would do in both workplace and retail.
So we're pretty positive that we'll continue to see good flows of business coming through.
Ashik Musaddi - JPMorgan
Just one follow-up on that, you mentioned 20% is what you are getting on workplace, so is that the entire workplace including trust based, unbundled business? Or is it just the contract based, bundled service?
Paul Matthews
We're in the contract space, so money purchase business; we don't do final salary schemes. So we expect about one in five employers in the UK are probably doing a scheme with us.
We look after 50 of the FTSE 100 about 1/3rd of the FTSE 350 and we have got a good percentage of the SME companies. In many ways, our business is pretty established.
So as those companies grow, then our workplace business grows.
Operator
Our next question is from Greig Paterson from KBW. Greig, please go ahead.
Greig Paterson - KBW
Just about GARS, just in terms of the discrete October. I was just wondering how the run-rate's been going there then and how the performance has been over October, to put two questions in.
Second one, is auto-enrolment new employees, you did 120,000 odd in the third quarter. I wonder what auto-enrolment's stating data is hitting a peak.
I was wondering what the quarterly run-rate would be for 2015 in terms of new schemes in auto-enrolment.
Keith Skeoch
GARS continues to do what it says on the (indiscernible). I think the last time I looked which was last night; it was up 4.2% year-to-date, divide by 0.8.
You're probably not that far away from 5% over LIBOR and it's done that over the last three years. So it's performed pretty well in-line with its long run average.
I don't look at particular months; we've seen net flows into multi-asset of about £3.7 billion, that's pretty much £400 million per month. It's bang in-line with where we said we thought it would be at the interims.
And as far as I can see, to the best of my knowledge, that continues.
Paul Matthews
We've got about 500,000 employees to date on auto-enrolment. I have quoted the number 1 million by the end of 2017.
I think that would still be my prediction that we will be taking around 1 million customers in between the day we started in 2013 to 2017. It's difficult to say sometimes on quarters because to give you an example, a number of the employers have not staged on their correct staging date.
As you probably saw yesterday, the government's starting now to fine some of these employers. So particularly those employers in July still they've got three months' deferral.
So it's sometimes difficult to know, with three months' deferral, when they're landing, but I would be pretty confident to say we're still targeting around 1 million customers by end 2017. Contribution rates for those customers now really is between 2% and 4% and the minimum any employer will be contributing for employees in 2018 is 8%.
So it's a pretty good story still.
Greig Paterson - KBW
But is it fair to say that the SME schemes have now passed all the official staging dates there should be a drop off next year?
Paul Matthews
Well for this year, it's April, May and July were the three main thrusts -- well these were the three main staging dates. I think it's fair to say, by the end of this year, 70% of the assets we would be forecasting for around 20% of the companies that were required to stage.
You've still got 80% of the employers in the UK have not staged and they represent probably about 30% of the assets you would expect to see because as you go down to the smaller company, there is typically a smaller salary. So I think if you worked on these, these would be not our statistics but national statistics around 20% of the employers would have staged by the end of the year resulting in 70% of the assets is predicted.
And from next year onwards, you have got 80% of the employers still to stage which we think will probably constitute around 30% of the assets that will come in. The good thing though is from 2018 you're looking at a jump from around 1% on 1%, our average rate is between 2% and 4% to be clear -- to 8% [ph].
Operator
Our next question is from Gordon Aitken from RBC. Gordon, your line is now open.
Gordon Aitken - RBC
A couple of questions please. All the talk about potential for DB to DC transfers -- what are you expectations here and how will it impact your business?
And the second thing is, you've often talked about enlarged corporate schemes being re-brokered around the market. Just seems that this -- not just for you, but just this seems that this isn't happening at all for anyone in the market.
Why is that? And you have said it will happen, so when do you think it will happen?
Paul Matthews
I'll start with the last one. Large schemes, I think it's fair to say it has been quieter.
There is a pension blight in many ways due -- we look after say, 50 of FTSE 100 and 1/3rd of FTSE 350. I see a number of these chief executives, pensions managers, they just want many of them to get to auto-enrolment.
If you've seen the press recently, some of the DB deficits have shot up again over the last few months of turbulent times. So I think you will start to see in the next couple of years some reshuffling of some of these schemes.
Some of these schemes have auto enrolled with the existing incumbent supplier, provider. I am not sure all of those have gone that well particularly for some companies and I think you will then start to see some of those companies look around.
If you take the average FTSE 100 Company, 50% of employees will be in a DB scheme still today and 50% will be DC. Our experience would say that nearly all of those companies will close to the existing employers at some stage, it's lumpy.
I think we said at the Q4 last year we picked up two tranches from two companies which was about £1 billion. You're talking about substantial lump sums, it's just difficult to know when they will come because it's based around the trustees' discussions with the employer.
I'm not trying to defer the question; we just don't know sometimes where the lump is going to come in, but I think you should expect towards the end of this year and next year more employers start to have a look at some of these areas. Is that okay, Gordon?
Gordon Aitken - RBC
Yes, if I can follow up on that? Often companies talk about pipelines, you do say trustees and they do take an awful long time to make up their minds and get to the process.
Are you in discussions?
Paul Matthews
Yes. I'll tell you we've got a good pipeline and the reason I say that is sometimes I'm expecting stuff to come in -- in a particular quarter and it can be deferred two quarters.
So we’ve good dialog, as you would expect with the closest relationship we’ve with these employers but sometimes it can be literally the market is not right. They can have more discussions, it can slip a quarter.
What I would say is, we have got a good pipeline of enquiries on these things, but I just can't say whether it'll be this year or next year. (Indiscernible) sometimes for your payables.
Gordon Aitken - RBC
And DB to DC?
Paul Matthews
Same theme really, because what you'll find is the employers (indiscernible) auto-enrolment, they're now starting to look at how they clean up some of their schemes. Some of these companies we look after may have 15 internal schemes some with us, some with other companies.
They've just had a pension blight, but the conversations are increasing now, of people looking over the next couple of years to sort some of these schemes out.
Gordon Aitken - RBC
What I meant more was employees' DB to DC transfers.
Paul Matthews
Well, it's just when they close, so there is two things. The reason we've got 50 of the FTSE 100 DC schemes is because they closed at some stage to final salary, because they were all virtually at final salary.
You pick up all the time now, every single person that joins those companies, they all tend to go into DC schemes. The DB members are not released until the DB scheme is closed.
When they close you suddenly get 50% of the workforce paying into a DC scheme. So it's quite dramatic in many ways.
All we can say is that the ongoing employees that join will join DC, but when the decision is taken to close it can take sometimes 12 to 18 months for it to go through all the negotiations with the unions with the workers' council's type of arrangements and then you suddenly see 50% all in one go suddenly switch across. It's quite dramatic, but it's lumpy.
Gordon Aitken - RBC
What I meant was, people at retirement taking advantage of pensions freedoms and going DB to DC. There has been a lot of research this week, are they going to blow that money?
Are they going to invest it with you?
Paul Matthews
That's a slightly different conversation which you can see perhaps take at different times is we would expect to see more people who are capped. So if you are not going to move out of the DB scheme into DC scheme necessarily straight away.
But many over 55 will switch to the DC scheme to release cash and capital that will be individual choices rather than a company doing that. And the question is, how many individual members doing that.
A number are doing -- there is a lot of predictions in the market how many will do that, I think a number of individuals. That's very different from the employer actually facilitating that procedure.
Operator
Our next question is from Ben Bathurst from Nomura. Ben, your line is now open.
Ben Bathurst - Nomura
Just one question, if I may? Given the current focus on the retirement income space, I wondered if it would be possible to get some granularity on how drawdown propositions have sold in the quarter and during the year perhaps compared to previous periods?
Thank you.
Paul Matthews
At the moment drawdown is a relatively small percentage of the marketplace if you took the whole annuity space. I think it's important to say that -- we write around 30% of the drawdown market in the UK today.
So what you're talking about here is, typically people have moved to a SIPP, self-invested personal pension and take a drawdown. The Chancellor's talking about 400,000 people next year coming to retirement age, the question is, I think going forward, how many of those 400,000 will take a drawdown?
It's probably the bigger question because the drawdown market's been completely opened up from April. As to how many drawdown cases we do today, I haven't got the exact figures of drawdown.
We've probably got about £10 billion of SIPP money that's in drawdown today. To give you some other granular detail, we take around 8000 phone calls every month from customers looking to talk to us about either a drawdown or an annuity purchase.
From April next year, I would expect that to grow dramatically because now the rules about party intergenerational moneys across, about death tax being removed will mean a considerable amount of people will be considering drawdown.
Ben Bathurst - Nomura
Okay. Just to follow-up, would it be fair to say then that there has been no discernible increase in the amount of drawdown customers?
Paul Matthews
Not yet, because I think the new rules are in - in April--
Luke Savage
The rules haven't come in yet, so--
Ben Bathurst - Nomura
No. Just wondered whether or not in the time post the budget there'd been an increase but that's still very helpful.
Luke Savage
Yes but there are a number of people who up to now would have taken annuity have deferred that decision. So we would expect there to be this rush that Paul refers to in April.
Operator
Our next question today is from Mark Cobley from Dow Jones. Mark, please go ahead.
Mark Cobley - Dow Jones
One simple question, I was just wondering if you could put in context the flow numbers. You're reporting here that inflows are the £4.6 billion year-to-date and that's a 45% fall from the year-to-date last year and then the quarter is about half of what it was last year.
I just wondered what has changed in the past year.
Luke Savage
Yes sure. I guess last year we did have some big schemes coming in.
I think as Paul had already touched on. This year as I think Keith has already touched on; we've seen some funds flowing out from Ignis as part of the integration that we expected, together with the fund scheme of £0.8 billion that went out in the quarter.
Very low margin business compared to the inflows that we are seeing, where the margin might be 2 or 3 times that amount. And I think we’ve signaled that we would expect some more of that in Q4 as well.
Keith Skeoch
Yes. The other thing that's really important was we saw inflows in 2013 and I'm on the record as saying I never really understood why, of £1 billion a month into GARS which was truly exceptional.
And as we have already pointed out we had outflows off the fund choice platform of £0.8 billion. So if you add that £0.8 billion back to the £0.6 billion, you've got flows underlying flows in the quarter on the third party book of £1.4 billion.
Operator
Our next question today comes from Alan Devlin from Barclays. Alan, your line is now open.
Alan Devlin - Barclays
A couple of questions, first of all, on annuities, down 2/3rds in the third quarter, I wondered if you could give us some view on what's going on there. Is there any changes from the second quarter in terms of people's behavior and deferrals, etcetera?
And also a follow-on, has your thinking around what's going to happen in April changed any or do you still expect the bulk of people to potentially go into drawdowns depending on their pot size? Or what do you think may happen in April?
Thanks.
Paul Matthews
Yes, there has been no real change in many ways; Q2 and Q3 have been pretty similar between 50% and 60% less people taking an annuity. We also have to put it context here, seven out of 10 of our customers historically, are going to move their money elsewhere to get a better annuity rate.
So of the three out of 10 we were doing, we are 50% to 60% down in those areas. I don't see that changing to be honest.
I think we’ve seen a doubling of triviality pots so people with a couple of thousand pounds. We've probably seen a doubling of people taking the cash straight away because they're entitled to take the cash.
The question then is of those that have deferred the 50% to 60%, how many of those will be cash later on after April who are over 55 and then how many of those will go into drawdown. The next question then is moving into April.
I think the interesting thing for us is historically we’ve never sought to gain customers at retirement. We are typically a workplace business and we've been a SIPP business.
So we've never gone into the open market option to compete and up to now we've lost seven out of 10 of our customers to elsewhere. We think our drawdown contract is the best, it's 30% of the UK market, it's an attractive contract.
So I think we will see more people internally who have a fund with us taking drawdown and we will see a large percentage of customers still going to cash, there is no question of that. The question then is how many customers move to us in retirement?
Where they would have moved from an open market option to a new provider? How many move to us to take out drawdown post April?
And we don't know that yet. I think that's the big dynamic going forward.
So yes continue to be 50% to 60% down on annuity sales, expect that to continue post-April. The question then is how much of the funds keep in drawdown and how many move to us to take drawdown.
Alan Devlin - Barclays
And just a quick follow-up, the 7 out of 10 people which historically left you guys, are they still leaving you, or are they deferring within the Standard Life--?
Paul Matthews
They don't always tell you because actually people are just saying well I'm leaving it for the moment. So at the moment, I would say they're leaving it at the moment, but some are still going elsewhere.
People are still buying annuities so it's a mixture between some buying annuities, some taking cash, some deferring.
Operator
Our next question today comes from Andy Hughes from Exane BNP. Andy, please go ahead.
Andy Hughes - Exane BNP
A few questions if I could. The first one is on the guidance for the Manulife fund distribution deal.
I think you said you are going to triple the assets under administration with Manulife, should I think of that as being triple the C$3.6 billion you currently have with John Hancock, i.e., C$2 billion of additional net inflows a year? That's question number one.
Question number two was just generally about income drawdown in the new world. You've got this new fund flexibility where you can take money out of your pension fund at any time, but the only way to access the tax free cash upfront is through income drawdown.
So do you still see people transferring to income drawdown in the new world because they want the tax free cash ahead of getting the actual taxed element when they retire? And the third question is on Hong Kong and Dubai and the international businesses.
You signal in the press release that due to challenging regulatory conditions, you are going to have fewer sales in future. You probably think it's a bad thing, I actually think it's probably a good thing because the cash flows are going to improve.
So maybe you could talk me through exactly how you see these changes panning out and what the impact on new business strain might be? Thank you.
Luke Savage
Okay, Andy. I'll let Keith take the first bit on the Manulife flows, Paul the income drawdown, then I'll take Hong Kong and Dubai.
Keith Skeoch
Yes we tend to think of it in Canadian dollars because that's the way in which the numbers were drawn up. So currently, we have about C$6 billion largely in the John Hancock GARS fund.
We're expecting to triple that over the course of the next three or four years, so that's about an additional C$18 billion. That from my perspective given that obviously we are already planning to see flow and do business with John Hancock and that's probably about 2/3rds of the flow coming off the platform, I would see that as securing the business flow making that less risky in terms of a forecast rather than it being a pure and net addition.
Andy Hughes - Exane BNP
Sorry, did you say additional C$18 billion or additional C$12 billion to triple?
Keith Skeoch
I think the agreement talks about us getting up to in excess of C$20 billion but some of that is already baked into our plan. So the net addition to net flows that you might see is not C$18 billion it's much more modest.
I think what its doing is it's securing actually what we were expecting to see anyway in terms of flows on that platform. So in other words, you shouldn't expect a massive acceleration as a result of this.
Paul Matthews
So income drawdown and the SIPP, it's difficult to say at the moment on numbers. There is a lot of speculation, I think in the press at the moment; there are predictions of around 30% of people in DB schemes coming out of DB and going into a SIPP drawdown contract.
I suspect those are people who are caught by the lifetime allowance. And people are now looking at the flexibility with large funds, death tax being abolished, the ability to pass on money to your relatives, children, grandchildren, etcetera.
I think this is a big market, 400,000 people are retiring next year anyway and then the Chancellor opening up the whole of the wealthier marketplace, where people, historically, have just gone into an annuity, pretty poor annuity rates looking like continuing for some time with interest rates low. The SIPP drawdown is the obvious answer for a lot of these people to be honest.
It's the best way they can release money. They can draw down completely on that SIPP now cash whenever they want to, so it does look a pretty attractive contract.
Luke Savage
Okay. And then in terms of Dubai and Hong Kong, we've got different changes to regulations in those two locations.
In Hong Kong, it's around increasing customer protection and transparency. In Dubai, it's guidance that's come out on how brokers should work with their providers on the distribution of products.
In both of those locations, we’re working through the implications with the regulators and our local advisors. As for your comment about whether it's a positive or negative, I'm not going to be drawn on that.
All I would say is you have got to remember that in the context of Standard Life overall these aren't material numbers anyway.
Andy Hughes - Exane BNP
Just wondering could you split the new business strain for international between Hong Kong and Dubai? Mainly Hong Kong I guess.
Luke Savage
I don't have that at [ph] hand, but I think you're right, yes.
Operator
Our next question today comes from Ravi Tanna from Goldman Sachs. Your line is now open.
Ravi Tanna - Goldman Sachs
Just two questions, please. The first one was a specific one on auto-enrolment, just wondering if you could give us an update please on the opt-out rates you've been seeing so far.
The second one was, I suppose similar to Andy's, around the additional pension flexibility and uncrystallized pension funds. Just trying to understand a little bit better whether you think that will have implications for the pension asset stickiness or whether you think the ability to take cash in multiple installments will actually lead to earlier outflows from DC funds?
Just looking for the thoughts around the overall net impact.
Paul Matthews
Yes. So we'll take the last one first.
I don't think for us actually, because you've got to remember, on drawdown, that we are the market leader. So we take 30% of the drawdown market anyway of people coming into SIPP, 7 out of 10 of our customers leave us to go to another company on annuities and 56% of our business is down on annuities of three out of 10 we would normally look after anyway.
So I think pretty much you can see that it's relatively small for us the impact of negativity. On the plus side, we are one of the few companies in the UK that currently offers drawdown.
I'm sure everybody else will be trying to get into it but actually building the flexibility and scale and actually having the qualified advisors to take people through this I think gives us a very strong position. So all the drawdown market is upside for us, I don't see any downside whatsoever on existing customers because of as I've laid out what currently happens to us.
On the auto-enrolment point we’re seeing a 7% opt-out so far. I think we actually forecast, originally about 20% to 25% opt-outs before we started auto enrolling but currently it's 7% of customers opt-out once they've been opted in.
Operator
Our next question today comes from Lance Burbidge from Autonomous Research. Lance, please go ahead.
Lance Burbidge - Autonomous Research
I've got three questions the first on auto-enrolment. I wonder if you could tell us what assets under management you have just from specifically auto enrolled employees so far.
The second one is on the retention of assets that I wonder if people are genuinely deferring their annuitization or taking money out of their pension, why your retail outflows are actually slightly up this year. And then the final one is on the revenue number which you talked about being up 13%.
I wonder if you could tell us how much is down to Ignis itself and how much is coming from incremental business.
Luke Savage
Well, I'll just take the last one first which is the Ignis. I think between 2% and 3% of the growth comes from Ignis, so we would still be into double figures without it and then on auto-enrolment retention, Paul?
Paul Matthews
I'll come back to the auto-enrolment one, I'm not sure I have got those available. The retail question, why up, Lance, we've had some of our workplace business is moving to retail.
I think we said at the half-year we've corrected some of that in that some of the corporate business has been shown under corporate, but in fact, they've left the schemes and we've moved that to retail. We have had pretty good retention.
So I think since the abolition of commission, whilst we’ve that initial peak in some of workplace on the retail side I think you're seeing less churn in many ways and a lot of our customers are staying with us longer. As far as the drawdown and seeing bigger outflows, we've got an ageing population.
So I think it's fair to say we've got something like 900,000 customers over 55. So the very fact is, we’ve a lot of customers attracted to us through our SIPP drawdown and that will continue.
So I don't think there is anything you can read into about the flows being slightly higher. I think it will just depend on where we’re.
There are some corrections in workplace. I don't think the drawdown will see huge more money flowing out but as I say I think there is more positive upside potentially with more people moving to us for drawdown.
I don't have the figures. I'll try and see if we have any numbers.
We don't normally give numbers out on -- but I'll see if we can find out what assets there are under management. I don't have them on me Lance to be honest.
Lance Burbidge - Autonomous Research
It's just that NEST had given out a number which was woefully low so it would be interesting to know.
Paul Matthews
What you've got to remember is particularly this year; you've got an average between 2% and 4% of average salaries coming in. So if you work on an average of £25,000 or whatever it is you're not talking massive money coming in auto-enrolment.
We have always said auto-enrolment is not so much about collecting the auto-enrolment. It's actually just making sure you look after all of those employers' workplace schemes.
What you should assume though is if it's 2% to 4% it's going to go to a minimum of 8% by 2018. So this is a long term gain in many ways.
Luke Savage
And that will be 8% per annum plus the cumulative assets that have been building up between now and then.
Paul Matthews
Correct, yes.
Luke Savage
So it is a four-year play. We have got one which we're doing very well in marked contrast to some of our peers.
Paul Matthews
Yes. The second thing is probably also we charge a £75 to £100 a month charge to employers on top of that as well.
Operator
Our next question is a follow-up from Greig Paterson. Greig, please go ahead.
Greig Paterson - KBW
Currently the annual run-rate for the 25% tax-free lump sum at retirement, can you give us a sterling billion?
Paul Matthews
I don't have that, Greig.
Greig Paterson - KBW
I assume it's a substantial number given the baby boomers coming through and stuff like that.
Paul Matthews
Yes. I don't have it, but if you look at the next 20 years of baby boomers coming through you are talking about a serious amount of money.
The market talks about 80% of the wealth in the country coming from 20% of the population and the baby boomers are holding most of that. So you've got a period of time over the next 15-20 years a lot of money -- personal wealth potentially in this market.
Greig Paterson - KBW
The concern is next April, suddenly people are taking a 25% tax free, you find that the residual 75% has gone from a 55% tax rate down to a marginal tax rate. So I'm trying to figure out what the risk is of increased outflows, post-April 2015.
Paul Matthews
I don't know. All I can say is if you take the outflows we take anyway, so if somebody is coming up to retirement historically 7 out of 10 of those customers are going to still leave us on annuities.
So in many ways for us over the long period of time this is more upscale for us. For the companies I think that we're expecting to take lots of annuity business.
I think the issue there is that they're just going to take that as cash.
Greig Paterson - KBW
But that's not 7 out of 10 who get to retirement it's--
Paul Matthews
That’s essentially is-- [Multiple Speakers]
Greig Paterson - KBW
Who don't take your drawdown product, so it's the resids seven out of 10 on the residual?
Paul Matthews
Yes, so for every 10 people that come to retirement, only 3 out of 10 of those stay with us in one form or another.
Greig Paterson - KBW
And how many take drawdown then? So you're saying only -- I thought only three stayed for annuities and there was a higher number for drawdown.
Paul Matthews
Yes, but you're talking relatively smaller numbers on the amount of people that actually take drawdown historically. We're taking 30% of a market that's not massive at the moment.
The drawdown market will take off from next April.
Operator
Our next question is from Marcus Barnard from Oriel Securities. Marcus, please go ahead.
Marcus Barnard - Oriel Securities
A question more for Paul on the UK retail space, we have seen the success of vertical integration, the acquisitions of networks and wealth managers and by you buying Ignis, it was more moving to product than distribution. Are you worrying that you're not keeping pace with movements in distribution and if you want to grow your business you've really got to grow your distribution?
How much exposure do you have to Intrinsic, for example which you could lose over time? And are you tempted more now to bring on your own internal distribution or focus more on direct to consumer solutions?
Thanks.
Paul Matthews
Yes in many ways we're sitting as a multichannel business. I think we are the number one supported company in the independent financial advisor market.
We’ve have a number of bank type distributions, Barclays in the workplace, Royal Bank of Scotland-National Westminster business in the retail space. Companies like Intrinsic have historically been tied in many ways.
So a number of these firms would traditionally not deal with us anyway. We have got a growing number of customers that do deal directly.
We've probably got about 1 million customers that deal direct with us already and with the regulation changes. We would expect to have more people coming to us, but we've always said we are a multichannel business and we have got our own qualified advisors in-house.
We're extremely well-positioned with the independent financial advisors and we've got good relationships with a number of the banks actually, but we particularly have strategic alliances with Barclays and workplace and the Royal Bank of Scotland-NatWest. So I think we are in pretty good shape and if you add to that Standard Life Wealth and Standard Life Investments across the whole value chain.
I don't really look at others particularly. I would just say that we're particularly well placed.
Operator
Our next question is a follow-up from Andy Hughes. Andy, please go ahead.
Andy Hughes - Exane BNP
The first question was on the CalPERS. Obviously, you've got a Seg fund mandate there with GARS in the max part of the portfolio and they have pulled the hedge fund investments.
So I was wondering, are you likely to see or do you expect to see money flowing into GARS as a result of their repositioning from their other hedge fund investments? Just by nature of the fact that you are not part that was affected, but the money might be going into your solution instead of a more general hedge fund portfolio.
Thank you very much.
Keith Skeoch
Not that I'm aware of, Andy. The max componentry, multi-asset class is a well-defined componentry with an allocation from CalPERS.
I’ve no idea and it's up to the client where they're going to send the hedge fund money.
Operator
Our next question today is from Oliver Steel from Deutsche Bank. Oliver, please go ahead.
Oliver Steel - Deutsche Bank
Just a couple of little detail questions. First is of the £0.2 billion of net third party inflows into Ignis in the third quarter was that all the ARGBF fund, or were there actually any inflows into any of the other third party funds?
And then the second question is looking out to 2017-2018 on auto-enrolment, what's your working assumption for whatever the term is opt-out rates? When the contribution rates go up?
Keith Skeoch
On the ARGBF fund, it would be a reasonable chunk of it but there is a real balance of ins-and-outs. If you look at our net flows, Oliver and look across asset classes you've got some doing well, some doing less well.
The other thing that's in that third party, Ignis, number is some money market funds, some CNAV funds that they run and they can be quite volatile on a quarter-to-quarter basis.
Paul Matthews
So 2017-2018 I think if I'm honest, I don't think we'll be writing huge amounts of those schemes. So I would have guessed the opt-in rates will be higher, because we charge £75 to £100 a month per employer, I think a lot of small employers will probably go to other providers that really are looking for the very small schemes.
So I would expect 7 to 10 probably for the next 12 months where we'll probably take quite a number of still new employees. I think once you get to the 2017 and 2018, the very small companies you could be talking quite high opt-out for those.
But I don't think they will be writing with us because the employer's got to pay us £75 to £100 minimum a month to start with. I think many of those companies can get that free from that charge elsewhere.
If they do decide to come to us it's fine because they automatically have to do everything automated. So it doesn't cost any money, they just auto-enroll themselves.
But I think they could be much higher, that lower end.
Oliver Steel - Deutsche Bank
I wasn't thinking so much about the new money coming on. I was just wondering whether the existing auto-enrolments you had already got would start seeing higher opt-out rates.
Paul Matthews
You go up to -- it's a minimum 8% plus from 2018. We have been seeing particularly in the bigger schemes much higher contributions.
We've been around 2% to 4% this year of contributions and then when it goes to 8-plus-%, I'm pretty positive from 218 onwards these are funds -- because we focus on typically the bigger companies. So if you took the 50 of the FTSE 100, 1/3rd of the FTSE 350 these employers are paying quite large contributions.
You then take the next tier down; again they're paying for us between 2% and 4%. I think the average in the market is probably 2% to 3%.
So I think as it gets going and people start seeing their funds grow it's going to be a minimum of 8%. I think from 2018 onwards it looks quite attractive business.
Luke Savage
And not least, because by then people have got into the habit of saving.
Operator
Our next question is a follow-up from Andy Hughes. Andy, please go ahead.
Andy Hughes - Exane BNP
Two quick questions, the first one, Standard Life Wealth, the flows have been very weak in terms of net flows compared to what I would have expected. Maybe give us background about what's actually going on and whether you do expect the net flows in Standard Life Wealth to pick up at some point in the future.
And the second question was on strategy, following the disposal of Canada. Canada obviously consumed a lot of the spread risk within the Group and the Group's focused on capital light products which don't have capital spread risk in them.
But given you have just disposed of a massive book of spread risk, does this give you additional capacity for basically lower quality credit assets in the UK annuity portfolio or does it open up alternatives such as growing into a diversified product line such as bulk annuities in future? Thank you.
Keith Skeoch
As far as Standard Life Wealth is concerned, I think you're right; there have been flows that haven't been as good as expected. There was a particular issue with some money flowing out of the international componentry of the Newton business that was brought on board, but to be honest that came to an end pretty close to the half year, and what we’ve seen as we have integrated the model put a good platform in place, the last couple of months have seen positive net inflows onto the Standard Wealth platform.
Luke Savage
And on the strategy point, yes you're right we have talked about -- the phrase people use is capital light and Canada was relatively capital heavy. The flipside is that we have never been capital constrained.
We've always won a large capital surplus and, therefore we haven't been sitting here saying that because we are now taking less spread risk in Canada we can afford to take more credit risk in the funds. Our strategy is pretty clear.
In Paul's business, it's around the developing workplace retail and retirement space. In Keith's business, it's about growing products and geographic footprint and I don't think that changes at all.
Operator
(Operator Instructions). We’ve no further questions registered, so I'll hand back to you Luke, to close the call.
Luke Savage
Well, thank you once again everybody for joining us today and just to recap. We think Standard Life has made very good progress in the first nine months.
Our businesses are well-positioned in the markets in which we operate and we’re positive about the opportunities open to us and confident delivering ongoing improvements in value for our customers and shareholders. Thank you all for your time and I look forward to speaking to you again soon.