Have Pension Reforms Set Up Carnival plc, Aviva plc And Friends Life Group Ltd For Huge Gains?

Stock prices can be influenced by a range of factors. Those factors include interest rates, levels of disposable income, commodity prices and, occasionally, government decisions.

The government’s pension reforms are one such example. As part of the reforms, the government will scrap the rules that force Britons to buy an annuity with their pension money. Instead, retirees will be able to withdraw money directly from their pension pots. This creates extra disposable income for quite a few older Britons.

Three companies that will, and have already felt the effects of this policy change are Carnival (LSE: CCL) (NYSE: CCL.US), Aviva (LSE: AV) (NYSE: AV.US), and Friends Life Group (LSE: FLG).

So how are these stocks likely to be affected, and are they set to surge in price next year? Let’s take a look.

The hip pocket nerve

Without a doubt, one of the biggest challenges for FTSE 100 companies this year has been the unwillingness of consumers to part with their money. Wages simply haven’t kept pace with inflation. The pension reforms announced by the government have affectively ‘created’ disposable income for older Britons. Those Britons, if they choose to drawer down those savings, could spend the money on holidays. The statistics show that the majority of people who choose cruise ship holidays are in the 60+ age group. It’s a logical conclusion then that a company like Carnival could benefit from the reform to pensions.

Don’t forget too that Cruise ships enjoyed a boost in popularity in 2013. According to the Cruise Lines International Association, the number of British and overseas passengers joining their cruise at a UK port grew 10% in 2013. Also the number of passengers on day visits to one of the UK’s 51 cruise ports jumped by 20%. This Fool believes that that popularity will have grown further in 2014, and will continue to grow next year and beyond.

There are also reports this week in the press of a boom in consumer credit. A holiday is an example of something that is purchased using credit.

From a financial perspective the company’s looking in good shape. It boasts a net profit margin of 25% and return on assets of over 12%. It’s become an attractive investment too for longer-term investors looking for a solid company — the dividend’s been stable over the past few years.

Shaken, not stirred

The government’s pension reforms have also led to a shake-up in the insurance sector. According to The Financial Times, Friends Life’s financial prospects have been damaged by the reforms — causing a sharp drop in sales of annuities. Given that exogenous shock, it seems the insurer was always going to be looking for a “white knight”, and Aviva appears to be that saviour.

Aviva is set to pay a 15% premium in order to build a better business. That includes: 5 million more customers; cash to help fund expansion plans; and the means to raise its dividend faster than would otherwise be possible. Chief executive, Mark Wilson, says synergies will also help save the business around £225 million pounds a year for the next three years.

Where does that leave us for 2015?

The financial services sector in Britain is looking more and more attractive. Net interest margins should improve as interest rates start to rise, while the services sector (which includes the banks) remains by far the largest driver of growth in the UK. While banking stocks set to gain from this, clouds are having over the industry in relation to regulatory requirements and risks in the property market.

It’s worth considering then the option of looking at non-bank institutions. If investors want strong, stable earnings in 2015, and attractive dividend yields, companies like Aviva (and Friends Life) make for an appealing alternative.

Carnival, too, I believe will reside in the 2015 pool of stocks that offer reliable, stable income for investors, and even the potential for some capital gains.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.