-- Our "Cash-Out Retirement Plan" provides a simple mechanism by which consumers can access their retirement savings. Consumers can withdraw agreed fixed amounts over a period of their choosing to fund immediate spending requirements or minimise tax over a longer time horizon.

-- Our "Fixed Term Retirement Plan" converts a portion of an individual's retirement savings into contractual payments over a period of their choosing, returning a pre-agreed lump sum amount to the customer at the end of the fixed term.

L&G already offers income drawdown solutions to higher net worth customers through our Suffolk Life subsidiary and will continue to provide these going forward.

LEGAL & GENERAL INVESTMENT MANAGEMENT.

 
 Financial highlights 
  GBPm                                    2014    2013 
---------------------------------------  ------  ------ 
 Total revenue                              645     594 
---------------------------------------  ------  ------ 
 Total costs                              (309)   (290) 
---------------------------------------  ------  ------ 
 Operating profit                           336     304 
---------------------------------------  ------  ------ 
 
 Net cash generation                        262     239 
---------------------------------------  ------  ------ 
 
 Cost:income ratio (%)                       48      49 
---------------------------------------  ------  ------ 
 
 External net flows (GBPbn)                 5.9    20.5 
---------------------------------------  ------  ------ 
 Internal net flows (GBPbn)                 1.7   (0.2) 
---------------------------------------  ------  ------ 
 Total net flows (GBPbn)                    7.6    20.3 
---------------------------------------  ------  ------ 
       of which International (GBPbn)       8.5    15.8 
---------------------------------------  ------  ------ 
 
 Assets under management (GBPbn)          499.1   449.5 
---------------------------------------  ------  ------ 
 Overlay assets(1) (GBPbn)                194.6   162.1 
---------------------------------------  ------  ------ 
 Advisory assets(2) (GBPbn)                14.8       - 
---------------------------------------  ------  ------ 
 Total assets (GBPbn)                     708.5   611.6 
---------------------------------------  ------  ------ 
 
 International assets under management 
  (GBPbn)                                 110.5    59.2 
---------------------------------------  ------  ------ 
 International overlay assets (GBPbn)       3.5     2.0 
---------------------------------------  ------  ------ 
 Advisory assets (GBPbn)                   14.8       - 
---------------------------------------  ------  ------ 
 Total international assets (GBPbn)       128.8    61.2 
---------------------------------------  ------  ------

1. Overlay assets, represent the notional value of derivative instruments on which LGIM earns fees. Fees are charged on notional values and as such are not subject to positive or negative market movements.

2. Advisory assets represent the assets on which Global Index Advisors (GIA) provide advisory services.

DIVERSIFIED GROWTH DRIVING CASH AND PROFITS

In a competitive market landscape, LGIM has continued to deliver strong results, with operating profit increasing by 11% to GBP336m (2013: GBP304m). With disciplined cost control, the cost to income ratio was 48% (2013: 49%). LGIM continues to invest in its client service proposition and systems infrastructure and is strengthening its distribution capabilities across its increasing client channels.

Total revenues increased 9% to GBP645m (2013: GBP594m) as total assets reached GBP708.5bn at the end of 2014 (2013: GBP611.6bn). This was driven by strong demand in LDI, Multi Asset, Active Fixed Income and Property asset classes, coupled with positive market returns.

Total net asset flows for the year were GBP7.6bn (2013: GBP20.3bn). Our Index net outflows for the year were GBP16.0bn (2013: net inflows of GBP0.2bn) largely resulting from the de-risking trend impacting DB passive funds. International net inflows of GBP8.5bn (2013: GBP15.8bn) were primarily driven by demand from clients in the US, which resulted in net flows of $9.7bn (2013: $8.4bn) during the year.

Strong demand for DE-RISKING SOLUTIONS

 
                                Solutions    Active 
                                 & Overlay    Fixed    Active                 Advisory   Total 
 Asset movements       Index     assets       Income    Equities   Property    assets     assets 
 GBPbn 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 As at 1 January 
  2014                  269.8        232.5      89.4         8.6       11.3          -     611.6 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Gross inflows           22.8          7.6       5.5         0.1        1.4          -      37.4 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Gross outflows        (39.1)        (6.6)     (3.8)       (0.1)      (0.5)          -    (50.1) 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Overlay / Advisory 
  net flows                 -         18.8         -           -          -      (0.2)      18.6 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 External net flows    (16.3)         19.8       1.7           -        0.9      (0.2)       5.9 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Internal net flows       0.3          1.3     (0.5)       (0.1)        0.7          -       1.7 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Total net flows       (16.0)         21.1       1.2       (0.1)        1.6      (0.2)       7.6 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Cash management 
  movements                 -            -     (1.6)           -          -          -     (1.6) 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Acquisition of GIA 
  assets                    -            -         -           -          -       13.4      13.4 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 Market and other 
  mvmts                  21.0         39.7      14.8       (0.3)        0.7        1.6      77.5 
--------------------  -------  -----------  --------  ----------  ---------  ---------  -------- 
 As at 31 December 
  2014                  274.8        293.3     103.8         8.2       13.6       14.8     708.5 
--------------------  -------  -----------  --------  ----------  ---------  ---------  --------

During the year, clients continued to move out of passive equities and transition to LDI strategies, ahead of potential buy-out. LGIM has experienced strong inflows into its LDI and active funds. Total LDI assets, including derivative overlay assets used to help clients manage the risk of meeting their future liabilities, increased a further 26% to GBP293.3bn (2013: GBP232.5bn) and are now larger than our total index portfolio. LGIM is the market leader in LDI solutions, with an estimated 44% share of the UK market, and it is extremely well placed to capitalise on the continuing de-risking trend in defined benefit pension schemes.

Legal & General Property (LGP) increased its AUM by 20% to GBP13.6bn (2013: GBP11.3bn), driven by strong net inflows of GBP1.6bn (2013: GBP0.9bn). LGIM's Property Authorised Investment Fund (PAIF) launched in 2006 has grown to GBP1.8bn as it continues to see steady inflow of capital from both Retail and Institutional investors. With LGC, LGP has launched two major JVs with PGGM, to invest GBP745m across the UK. LGIM's property team plays an integral role in the Group's drive to increase Direct Investments on behalf of L&G Retirement and L&G Capital. As one of the most active UK investors in the real estate market, LGP completed over GBP4.1bn of property transactions in the UK market in 2014, investing approximately GBP3.4bn and disposing of c GBP0.7bn.

GROWTH IN UK DEFINED CONTRIBUTION

UK defined contribution (DC) pension AUM increased 16% to GBP40.7bn (2013: GBP35.1bn). Total net inflows of GBP5.9bn included GBP2.1bn of net inflows from Legal & General's Workplace Savings platform. From 1st January 2015, Workplace has been transferred from LGAS to LGIM to create a fully integrated customer proposition for UK DC savings customers. The scale and efficiency of LGIM's passive management and asset allocation capabilities, together with the continuing growth in Workplace administered assets, enables us to provide a highly competitive savings proposition, well placed to benefit from longer term UK savings trends. In response to the pension reforms announced in the 2014 budget we have launched a number of new funds and we are continuing to expand and develop our range of multi-asset funds.

CONTINUED INTERNATIONAL EXPANSION

To complement our existing businesses, we have transferred our US index equity funds of c$60bn to LGIM's Chicago office, where they are now managed. As a result of this, the acquisition of GIA, and net flows in the year, international assets grew by 110% to GBP128.8bn (2013: GBP61.2bn). In the US, LGIM's Active Fixed Income and LDI proposition continued to grow rapidly with net flows of $9.7bn (2013: $8.4bn). LGIM's continued success in the US has been driven by a combination of strong investment performance, with the majority of composites outperforming their benchmarks over one, three and five years, and a growing need from defined benefit clients for de-risking solutions.

Elsewhere, LGIM continues to make progress in Asia as it invests in resources and infrastructure, winning its first passive client in the region together with additional active fixed income inflows during the year.

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