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Just Group says rule changes will make UK annuities more expensive

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By Noor Zainab Hussain

(Reuters) – Proposed rule changes for lifetime mortgages are already raising the price of retirement products for British pensioners and curbing mortgage lending to younger Britons, pensions provider Just Group’s <JUSTJ.L> chief executive said on Thursday.

The company reported an 85 percent jump in first-half operating profit but said it would delay paying a dividend while it waits for clarity on the rule changes, which it said could eat into its finances.

The changes proposed by Britain’s Prudential Regulation Authority would require Just and its rivals to set aside more capital to protect against the risks posed by mortgages, chiefly that house prices could fall.

The proposals, which were announced in July and put out for consultation, refer to lifetime, or equity release, mortgages which enable homeowners to borrow against the value of their property and only pay back the loan when they die.

Just Group’s shares have fallen 30 percent since it warned on July 24 that the rules were likely to affect its finances, with analysts saying the company may need to raise additional regulatory capital to cope.

On Thursday its shares rose after its strong earnings report and were up 2.8 percent at 89.7 pence at 0822 GMT.

Chief Executive Rodney Cook told Reuters that Just Group had already changed its pricing of annuities for new customers to reflect the cost of the proposed changes to its business as a whole.

He said he would decide whether to pay a dividend or not at the end of the year, when the company expects a decision from the regulator.

“Unfortunately, that (capital increase) has to be passed on to customers so we have increased the cost of annuities … UK retirees, because of the regulators approach, will not be getting as good an outcome as they were previously,” Cook said.

“We’ve (also) adjusted the terms and conditions of our mortgages so that probably we’ll be lending less to younger people,” he said adding that these changes were industry-wide.

The company reported a first-half adjusted operating profit of 124.4 million pounds , higher than a consensus forecast of 109 million pounds and helped by demand for its retirement products as companies look to offload pension liabilities.

Just also said it could issue more debt.

“While an equity raise cannot be ruled out, we view it as unlikely in the majority of outcomes. We believe the stock is trading as if a rights issue is probable, ignoring its other levers…” Barclays analysts, who rate Just as “Overweight”, said.

(Reporting by Noor Zainab Hussain and Muvija M in Bengaluru; Editing by Patrick Graham/Keith Weir/Susan Fenton)

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