Table of Contents
Executive Summary
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- Impact of COVID-19 on annuities and income drawdown
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- Figure 1: Short-, medium- and long-term impact of COVID-19 on annuities and income drawdown, November 2020
- The market
- Market size and forecast
- A decline in sales across the retirement income market is expected
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- Figure 2: Volume of new annuity and income drawdown sales, 2015-20
- Sales are forecast to start to recover in 2021
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- Figure 3: Volume forecast of new annuity and income drawdown sales, 2015-25
- Employment growth among 50-64s falls below zero
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- Figure 4: Cumulative growth in UK employment level, seasonally adjusted, July-September 2020
- Pension funds recovery stalls in Q3 after an initial rebound…
- …while annuity rates remain low
- New investment pathways regulation is on the horizon
- Companies and brands
- Annuity providers hope to bounce back from a difficult start to 2020
- An increase in blended solutions
- Improved access to annuities
- The consumer
- 55-64s have been disproportionately affected by COVID-19
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- Figure 5: Trends in current financial situation compared to a year ago, by age, October 2020
- State pension age remains the main retirement milestone
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- Figure 6: When DC pension holders expect to access their pension (under-65s only), July 2020
- Limited confidence when making pension decisions
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- Figure 7: Level of confidence about making decisions about pension savings, July 2020
- Despite low sales, interest in annuities persists
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- Figure 8: Decumulation options likely to consider, July 2020
- Knowledge of drawdowns and annuities is worrying
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- Figure 9: Pension knowledge, July 2020
- Low levels of interest in accessing professional advice
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- Figure 10: Important factors when considering retirement income, July 2020
- Significant interest in combining benefits of income drawdown and annuities
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- Figure 11: Attitudes towards pensions and retirement, July 2020
Issues and Insights
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- COVID-19 ramps up retirement stresses for 55-64 year olds
- Misplaced confidence is harming the drawdown market
- Repositioning annuities as an income drawdown add-on could reinvigorate the market
The Market – Key Takeaways
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- A sharp decline is expected in annuity and income drawdown sales
- Drawdown withdrawal rate highlights need for professional advice
- Employment growth among 55-64s falls to a new low
- New regulations are set to improve non-advised guidance
Market Size and Forecast
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- Annuity and drawdown markets can bounce back from a difficult 2020
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- Figure 12: Short-, medium- and long-term impact of COVID-19 on annuities and income drawdown, November 2020
- Retirement income markets are expected to decline sharply in 2020
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- Figure 13: Volume of new annuity and income drawdown sales, 2015-20
- Premium income is likely to be less affected by the outbreak
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- Figure 14: Value of new annuity and income drawdown premiums, 2015-20
- Sales are forecast to rebound in 2021
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- Figure 15: Volume forecast of new annuity and income drawdown sales, 2015-25
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- Figure 16: Volume forecast of new annuity and income drawdown sales, 2020-25
- Figure 17: Value forecast of new annuity and income drawdown sales, 2015-25
- Figure 18: Value forecast of new annuity and income drawdown sales, 2020-2025
- Market drivers and assumptions
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- Figure 19: Key drivers affecting Mintel’s market forecast (prepared on 13th November 2020) 2020-24
- Learnings from the last recession
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- Figure 20: Number of new pension annuity sales, 2007-11
- Forecast methodology
Pension Pots Accessed
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- Pension access declines in the six months leading up to March
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- Figure 21: Number of DC pension pots accessed for the first time, by usage, April 2018-March 2020
- Growth in lower value annuities
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- Figure 22: Proportional distribution of pension pots accessed, by pot size and usage, October 2019-March 2020
- Annuities are more widely used by over 65s
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- Figure 23: Proportional distribution of pension pots accessed, by customer age and usage, October 2019-March 2020
- Most plans are withdrawn at a rate above 8%
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- Figure 24: Number of plans by annual rate of withdrawal, April 2019-March 2020
Annuity Market Segmentation
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- Enhanced annuities make up 40% of all sales in H1 2020
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- Figure 25: Annuity sales, by product type. 2018-H1 2020
Channels to Market
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- 44% of annuities are sold without advice or guidance
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- Figure 26: Use of advice when purchasing an annuity, April 2018-March 2020
- Internal sales continue to account for majority of annuity sales
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- Figure 27: Sources of business for annuity providers, April 2018-March 2020
- Advised drawdown sales decline
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- Figure 28: Use of advice when entering drawdown, April 2018-March 2020
- Close to 60% of drawdowns are sold to existing customers
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- Figure 29: Sources of business when entering drawdown, April 2018-March 2020
Market Drivers
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- A fast recovery in GDP would prevent an extended period of uncertainty
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- Figure 30: Annual GDP, 2007-24 (central forecast)
- DC pensions overtake DB schemes for the first time
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- Figure 31: Proportion of employees with workplace pensions, by type of pension, UK, 1997-2019
- Pension funds stall after an initial recovery…
- …while annuity rates hit by COVID-19 uncertainty
- Cumulative employment growth for 50-64s drops to negative
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- Figure 32: Cumulative growth in UK employment level, seasonally adjusted, July-September 2020
- …while attitudes toward life in retirement may be shifting
- COVID-19 leads to increased demand for fixed-term annuities
- Concerns persist about impact of Brexit on savings and investments
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- Figure 33: Perceived impact of Brexit on the value of savings and investments, January-September 2020
- Growth in life expectancy remains sluggish
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- Figure 34: Annual change in life expectancy at birth in weeks, males and females, UK, 1982-84 and 2017-19
Regulatory and Legislative Changes
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- New Investment Pathways regulation is set for introduction
- Pensions freedom access age to rise to 57
- The Money and Pensions Service plan to develop a ‘later-life checklist’
- Pension firms fined following enhanced annuity advice failures
- The Pensions Regulator announces shift in focus to DC schemes
- Further delays for the pensions dashboard
Companies and Brands – Key Takeaways
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- Annuity providers expect to bounce back from COVID-19
- New blended solutions enter the market
- Improving access to, and competition in, the annuities market
Key Provider Performance
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- Aviva
- Legal & General
- Just Group
- Scottish Widows
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- Figure 35: New annuity business, by the largest providers, 2019
- Pension firms will be forced to innovate in the drawdown market
Competitive Strategies
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- Blended products start to gain traction
- Providers launch investment pathway solutions
- New developments improve access to annuities
- Just Group plans to launch a new online advice service
The Consumer – Key Takeaways
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- Confidence when making decisions about pensions appears to be misplaced
- Understanding of options in retirement is extremely limited
- Only the minority prioritise having access to retirement advice
- Significant interest in the best of both worlds
Impact of COVID-19 on Consumer Sentiment
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- Close to 40% of 55-64s are worse off than a year ago…
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- Figure 36: Trends in current financial situation compared to a year ago, by age, October 2020
- …while one in five 55-64s are really worried (or worse)
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- Figure 37: Trends in consumer sentiment for the coming year, by age, October 2020
- Over-55s are not disproportionately concerned about the virus
Pension Ownership and Access
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- One-in-five own more than one pension pot
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- Figure 38: Ownership of single and multiple pension pots, July 2020
- Confusion over the type of pension owned
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- Figure 39: Type of pension owned, by number of pension pots, July 2020
- 46% of over-55s have accessed their pension pot
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- Figure 40: Proportion of DC pension holders aged 55+ who have accessed a pension pot, July 2020
Age Expecting to Access Pension
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- State pension age is the most common retirement goal
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- Figure 41: When DC pension holders expect to access their pension (under-65s only), July 2020
Confidence in Making Pension Decisions
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- Over 40% have little confidence making decisions about their pension
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- Figure 42: Level of confidence about making decisions about pension savings, July 2020
- 70% of over-55s are confident making decisions
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- Figure 43: Level of confidence about making decisions about pension savings, by age, July 2020
Consideration of Decumulation Options
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- Interest in annuities remains higher than drawdown
- Partial cash withdrawals are the most popular option
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- Figure 44: Decumulation options likely to consider, July 2020
- Cash withdrawals and annuities are much less of a factor among over-55s
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- Figure 45: Decumulation options likely to consider, by age, July 2020
- Building confidence will improve drawdown sales
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- Figure 46: Decumulation options likely to consider, by confidence making decisions about pension savings, July 2020
Assessment of Retirement Income Knowledge
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- Clear gaps in understanding and knowledge
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- Figure 47: Pension knowledge, July 2020
- Pension confidence can be unfounded
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- Figure 48: Proportion of people selecting the correct response to statements about pensions and retirement, by confidence when making pension decisions, July 2020
Retirement Income Priorities
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- A secure income is by far the most important factor
- Only 15% regard access to professional advice as important
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- Figure 49: Important factors when considering retirement income, July 2020
Attitudes towards Pensions and Retirement
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- Under-65s are most concerned about market volatility
- Over half would be interested in a blended product
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- Figure 50: Attitudes towards pensions and retirement, July 2020
- 55-64s require access to advice more than ever before
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- Figure 51: Attitudes towards pensions and retirement, by age, July 2020
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Consumer research methodology
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