Table of Contents
Overview
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- What you need to know
- Products covered in this Report
Executive Summary
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- The market
- Demand for drawdown has climbed well ahead of annuities
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- Figure 1: Forecast of new retirement income sales – Fan chart, 2013-23
- Small pension pots the most likely to be fully withdrawn
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- Figure 2: Number of DC pension pots accessed for the first time, split by usage, October 2015-September 2017
- Half of annuities sold include a guaranteed period
- Higher proportion of annuity sales completed on the open-market
- IFA led drawdown sales have tumbled
- Modern retirement requires flexible income solutions
- FCA proposes standardised income drawdown products
- Companies and brands
- Lack of competitive pressures in the annuity market
- Drawdown market competition more diverse and fragmented
- Significant innovation yet to come
- The consumer
- Pension ownership
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- Figure 3: Ownership of single and multiple pension pots, June 2018
- Half of those aged 55+ have already accessed their pension savings
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- Figure 4: Proportion of DC pension holders aged 55+ who have accessed pension pot, June 2018
- 19% anticipate they will access their pension before state retirement age
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- Figure 5: When DC pension holders expect to access their pension (under-65s only), June 2018
- An annuity is a more appealing concept than drawdown for those yet to retire
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- Figure 6: Decumulation options likely to consider, June 2018
- 74% find the various retirement income options confusing
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- Figure 7: Agreement with statements about retirement income options, June 2018
- Pension savers will seek advice and guidance but do not want to pay for it
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- Figure 8: Sources of retirement income advice and guidance, June 2018
- What we think
Issues and Insights
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- Should access to independent advice be facilitated via the workplace?
- The facts
- The implications
- Market dynamics will eventually turn back in the favour of annuities
- The facts
- The implications
The Market – What You Need to Know
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- Drawdown sales volumes have blasted ahead of annuities
- Lower value pension pots the most likely to be fully withdrawn
- Half of all annuity sales are with a guaranteed period
- The proportion of IFA led drawdown sales has plummeted
- Modern retirement requires a more flexible approach
- FCA proposes standardised income drawdown options
Market Size and Forecast
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- Drawdown sales continue to surge ahead of annuities
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- Figure 9: Volume of new annuity and income drawdown sales, 2013-17
- Drawdown was worth an estimated 83% of the market in 2017
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- Figure 10: Value of new annuity and income drawdown premiums, 2013-17
- Sales volumes expected to be relatively flat in the next five years…
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- Figure 11: Forecast of new retirement income sales – Fan chart, 2013-23
- Figure 12: Forecast of new retirement income sales, 2013-23
- …while premiums are projected to reach £32 billion in 2023
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- Figure 13: Forecast of new retirement income premiums – Fan chart, 2013-23
- Figure 14: Forecast of new retirement income premiums, 2013-23
- Forecast methodology
Pension Pots Accessed
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- Over half of pension pots accessed are fully withdrawn
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- Figure 15: Number of DC pension pots accessed for the first time, by usage, October 2015-September 2017
- Full withdrawals primarily executed by those with pots under £30,000
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- Figure 16: Proportional distribution of customers by pot size and usage, April-September 2017
- Desire for flexibility making drawdown more common
- Over-65s more likely to buy an annuity
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- Figure 17: Proportion distribution of customers by age and usage, April-September 2017
- £17.5 billion withdrawn from pensions since start of Pension Freedoms
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- Figure 18: Flexible payments from pensions, Q2 2015-Q1 2018
Annuity Market Segmentation
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- Annuities with a guaranteed period account for half all sales
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- Figure 19: Annuity sales by product type, 2015-17
- Number of flexible annuity sales nearly doubles
Channels to Market
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- Over half of annuities sold externally while opposite true for drawdown
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- Figure 20: Breakdown of annuity and income drawdown sales by internal and external, 2014-17
- Large majority of annuities sold without advice
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- Figure 21: Number of new annuity sales, by channel, 2014-17
- Drawdown sales via IFAs have dwindled since 2015
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- Figure 22: Number of new drawdown sales, by channel, 2014-17
- Intermediary definitions
Market Drivers
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- In-force DC pension scheme numbers move beyond 23 million in 2016
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- Figure 23: Number of individual and group pensions in force and number of occupational DC members, 2012-16
- Thus far 9.7 million workers have been auto-enrolled
- Historically low annuity rates increase appeal of income drawdown
- Fewer providers offering annuities on the open market
- Proportion working beyond state pension age on the rise
Regulatory and Legislative Changes
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- FCA Retirement Outcomes Review final report
- Lack of market competition detrimental to non-advised consumers
- Key proposals require providers to bear more responsibility
- Providers must inform annuity customers of better deals
- Launch of Pension’s Dashboard facing delays
- Single Financial Guidance Body receives go-ahead
- Pension Advice Allowance has thus far been ineffective
- Calls to raise employer-arranged pension advice exemption
Companies and Brands – What You Need to Know
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- Lack of competitive pressures in the annuity market
- The number of providers selling on the open market falls further
- Drawdown market competition more diverse and fragmented
- Significant innovation yet to come
Key Players and Market Movers
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- There are over 50 retirement income product providers
- The leading annuity providers
- Recent sales figures
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- Figure 24: New annuity business, by the largest providers, 2017
- The number of open market annuity providers drops again
- More companies are competing in the income drawdown market
Competitive Strategies and Innovation
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- Major innovations still to come
- Launch of more drawdown-focused funds and services expected
- Scottish Widows launches Retirement Portfolio Funds for drawdown
- Royal London to offer the option to swap guaranteed income for a bonus
- Robo-advice set to play a bigger role in retirement income management
The Consumer – What You Need to Know
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- Most in full-time employment have a pension
- Three fifths anticipate accessing pension at state pension age or later
- Those yet to retire more likely to consider an annuity than drawdown
- Control and flexibility a must but retirement options seen as confusing
- Only 27% would consult with an IFA about retirement income plans
Pension Ownership and Access
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- Most full-time employees have a pension
- Many savers hold multiple pension pots
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- Figure 25: Ownership of single and multiple pension pots, June 2018
- DB schemes remain more prevalent than DC schemes
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- Figure 26: Type of pension owned, by number of pension pots, June 2018
- Multiple pension ownership common among DC pension holders
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- Figure 27: Proportion of pension savers with a single pot versus two or more pots, by type of pension, June 2018
- Half of those aged 55+ have accessed their pension savings
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- Figure 28: Proportion of DC pension holders aged 55+ who have accessed pension pot, June 2018
Age Expecting to Access Pension
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- Most expect to access pensions at, or after, state pension age
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- Figure 29: When DC pension holders expect to access their pension (under-65s only), June 2018
- Delaying access a sensible option if available
- Temptation to access pension pots rises as state retirement age nears
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- Figure 30: When DC pension holders expect to access their pension (under-65s only), by age, June 2018
- Personal and financial well-being key in determining timing
Decumulation Options Likely to Consider
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- Annuities are favoured over drawdown…
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- Figure 31: Decumulation options likely to consider, June 2018
- …but a partial cash withdrawal the most common option considered
- Multipronged approach also a possibility
Attitudes and Expectations about Retirement Income
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- Retirement income control and flexibility in high demand…
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- Figure 32: Agreement with statements about retirement income options, June 2018
- …but retirement income options are widely viewed as confusing
Sources of Retirement Income Advice and Guidance
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- Pension savers interested in advice and guidance but not paying for it
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- Figure 33: Sources of retirement income advice and guidance, June 2018
- Employers are well placed to link savers with advisers
Appendix – Data Sources and Abbreviations
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- Consumer research methodology
- Abbreviations
Appendix – Market Size and Forecast
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- Total market forecasts – best- and worst-case scenarios
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- Figure 34: Forecast of new retirement income sales – Best- and worst-case scenarios, 2018-23
- Figure 35: Forecast of new retirement income premiums – best- and worst-case scenarios, 2018-23
- Forecast methodology
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