One of the City’s oldest stalwarts, Legal & General, is deliberately reshaping itself into a faster-growing, higher-margin business, challenging its long-held reputation as a slow-and-steady dividend payer.
Founded in 1836 and a founding member of the FTSE 100, the group’s traditional strength has been in capital-intensive life insurance, annuities, and long-term savings. This model, governed by strict capital rules from the Prudential Regulation Authority, has made it a dominant force in areas like bulk-purchase annuities and term life insurance, but also rendered its long-term profit streams complex and opaque for many investors to value. This perceived complexity, a sector-wide issue reflected in the low valuations of peers like Chesnara and Just Group, has historically depressed its share price, contributing to a dividend yield consistently in the high single digits.
The Strategic Pivot to an Asset-Light Future
The company’s transition centres on moving away from heavy reliance on these traditional insurance products towards fee-generating, asset-light operations. This strategic shift was underscored in 2024 by the merger of its asset management subsidiary, Legal & General Investment Management (LGIM), with its alternative assets unit, Legal & General Capital (LGC), to create a unified, scalable Asset Management division.
This consolidated entity is a powerhouse, overseeing £1.2 trillion in assets. It is aggressively expanding into private markets, with assets in this area growing from £57 billion to £75 billion last year. A key move was the acquisition of a 75% stake in global real estate private equity firm Proprium Capital Partners, aimed at broadening exposure in Europe and Asia-Pacific. The group has set a target to grow its private markets assets under management to £85 billion by 2028.
This refocusing has led to a streamlined corporate structure built around three core divisions: Institutional Retirement, Asset Management, and Retail, with a separate Corporate Investments unit established to manage non-strategic assets.
Growth Engines: DC Pensions and Workplace Savings
Central to the new growth strategy is the UK’s defined contribution (DC) pension market, where Legal & General is already the largest provider with over £200 billion in DC assets under management. Its workplace DC platform, serving approximately 5.7 million members and with assets exceeding £100 billion, is now described by management as the group’s “core customer acquisition engine.”
The potential for expansion is significant. According to the Pensions Policy Institute, the value of private-sector workplace pension assets could grow from around £1.2 trillion in 2025 to £2.2 trillion by 2045. The market is also expected to consolidate dramatically, with projections indicating only 15 to 20 large “mega-funds” by 2035, down from over 60 providers today. Legal & General is positioning itself to be a dominant survivor, targeting £40 billion to £50 billion in cumulative net flows for its workplace DC business by 2028.
Innovation supports this ambition. The group has launched products like the Private Markets Access Fund, which has attracted £1.6 billion, and the Lifetime Advantage Funds, which incorporate private market assets. It has also introduced a Guided Retirement Planner tool to help individuals plan retirement income.
Financial Projections and Shareholder Returns
The financial outcomes of this transition are becoming clear. For 2024, the group reported a core operating profit of £1,616 million, up from £1,531 million in 2023. In its institutional retirement arm, the flagged Contractual Service Margin (CSM)—representing unearned future income from its annuity book—stood at £12.4 billion, up 2% year-on-year.
Management is deploying capital aggressively to reward shareholders, signalling confidence in its cash-generative future. Alongside its 2025 results, it announced the largest share buyback in its history at £1.2 billion, with over 8 million shares already cancelled by late March 2026. This is part of a plan to return over £5 billion to shareholders between 2025 and 2027. The dividend, which was raised to 21.36p per share for 2024, is expected to grow by 5% for the 2024 financial year and by 2% annually thereafter.
This capital return policy involves a strategic management of its balance sheet. While its Solvency II coverage ratio strengthened to 232% in 2024, it declined to 210% following the 2025 results as capital was directed towards buybacks and growth. The company states this is comfortably within a new target operating range of 160-190%.
Based on these projections, the shares trade at a historical price-to-earnings ratio of 11.9 and, when combining forecast dividends and buybacks, a total shareholder yield of 16.7% for 2026. This valuation persists despite the group’s strategic evolution and its commanding position in growth markets, suggesting the transition is an ongoing story for investors to assess.
