Table of Contents
Introduction and Abbreviations
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- Report content
- Key sources
- Global information and research
- Consumer research
- ACORN
- Abbreviations
Premier Insight
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- A large untapped market indicates opportunities going forward
- Many consumers have retirement saving products but are not paying into them
- Defining spending priorities
- Young women are key to new business
- Wealthy ‘unmarrieds’ might commit…to a pension plan
- Urban Prosperity have more capacity to save
- Those in the South may be key to the transfer market
Executive Summary
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- Economic environment has left little appetite for pensions
- Mind the savings gap…it’s growing
- State provision will not be enough for retirement
- Individual pensions only have supplemental role
- Stakeholder pensions have reformed other individual pension products
- Pensions simplification will dissolve traditional differences among individual pension products
- Future state pension provision gets media coverage, perhaps stimulating future contributions
- Individual pensions represent a third of all private pensions
- Most individual pensions are ‘personal pensions’ but stakeholder pensions have taken market share
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- Figure 1: Value (APE)* of new individual pensions business, by product type, 2000-05
- New personal pensions contracts for have decreased by 70% over the past five years
- Key players…no change at the top
- Distribution and advice – depolarisation to open up new channels
- Advertising spend is down and focused on niche products
- Consumer financial activity – evidence of a growing ‘savings culture’?
- Financial product ownership
- Consumer attitudes and targeting opportunities
- Industry views
- The future
Background and Definitions
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- Basic state pension/pensions credit
- State second pension (S2P)/additional state pension
- Private pensions
- Occupational pensions
- Additional voluntary contributions (AVCs)
- Individual pensions
- Personal pensions
- Stakeholder pensions
- Group personal pensions
- Free-standing additional voluntary contributions (FSAVCs)
- Self-invested personal pensions (SIPPs)
- Recent changes to products and new proposals for change
- Launch of stakeholder product suite
- Stakeholder pension scheme amendment in 2005
- The Pensions Commission – Turner Report
- Reforming existing state pension provision
- National Pensions Savings Scheme (NPSS) – a new mechanism for saving
- Implications of the Turner Report for the market
- A-day and pensions simplification
Market Drivers
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- Introduction
- Current levels of income from the state pension will not facilitate a comfortable retirement
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- Figure 2: Basic state pension levels, weekly income, 2005/06 tax year
- An ageing population spending more time in retirement will put a strain on the state system
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- Figure 3: Population growth estimates, by age group, 1995-2010
- Length of time spent in retirement is set to increase
- Retirees draw income from a variety of sources in their retirement
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- Figure 4: Gross income of pensioner couples, by source of income, 2003/04
- Private pension provision has been predicated on past stock investment performance
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- Figure 5: FTSE 100 Index, October 1996-October 2005
- Alternative investments have grown as a consequence of poor relative returns of the stockmarket
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- Figure 6: UK house prices (£), 1996-2005
- Putting all eggs into one property basket does not make a balanced investment portfolio
- ISAs have continued to grow
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- Figure 7: Value of funds held in stocks and shares ISAs and cash ISAs, 2000-05
- Consumers are more sensitive to base rate changes – low annuity rates have produced disappointing returns
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- Figure 8: Bank of England base rate, 1992-2005
- The savings gap – 8.3 million adults are not saving anything at all for a pension
- Many are servicing debts rather than prioritising pensions saving
- Younger savers have specific affordability issues
- Consumer saving is expected to increase
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- Figure 9: PDI, consumer expenditure, savings and saving ratio, 2000-10
- A-day may stimulate saving among those with higher incomes and will lead to convergence between personal pension products
- A-day changes to contribution limits will alter the pensions landscape…probably
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- Figure 10: Current annual contribution limits for personal and stakeholder pensions, by age of contributor, 2005
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- Figure 11: Expected annual contribution limits for indivduals from 6 April 2006
- A-day will enable more ways to access savings and greater choice upon retirement
- Occupational pensions are becoming less reliable – potentially paving the way for a greater role for personal pensions
- Personal and stakeholder pensions pots are small and will need to grow
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- Figure 12: Number of individuals holding personal and stakeholder pensions (1), by employment status, annual earnings (2) and fund value, 2002/03.
- Personal pension transfers are increasingly leading to ‘consolidation’
- Converging markets – stakeholder and personal pensions
- Competitive pressures from stakeholder pensions have reduced the cost of personal pensions
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- Figure 13: Typical lifetime costs of personal and stakeholder pensions, 2005
- The future cost of pensions
- Both types of pension allow the customer to vary the amount of contributions
- Two cautionary notes on varying contributions
- Stakeholder pensions have increased their investment flexibility
- Introducing SIPPs
- Pensions simplification, not property, will drive growth of SIPPs
- Chancellor’s U-turn on SIPPs in residential property
- Emotional drivers prevent many from acknowledging the pension problem
- Consumers have faith that the state pension will come good
- New initiatives may instil trust in the industry and subsequent new growth
- Traditional pension providers and new entrants attempt to enhance their brands
Market Size and New Business Trends
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- The occupational pensions market represents two thirds of the private pensions market
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- Figure 14: UK contributions to private pension schemes, 1996-2004
- Contributions to occupational pensions have grown faster than payments into individual pensions
- Individuals’ and employees’ contributions into individual pensions have grown least
- Employer-sponsored stakeholder pensions have stimulated employer contributions
- The total number of individual pensions in force has dropped
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- Figure 15: Individual pension policies in force, 1985-2004
- Most pension contracts (almost 70%) are standard personal pensions
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- Figure 16: Individual pension business in force at year end (OB), 2004
- Standard personal pensions represent 50% of in-force individual pensions by value
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- Figure 17: Value of regular-premium individual pensions and FSAVCs in force, 2004
- The average size of contributions has increased, reflecting fewer numbers of new contracts
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- Figure 18: Average single-premium contribution, Q3 2004 and Q3 2005
- Average contributions to personal pensions are greater than stakeholder pensions, but only marginally
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- Figure 19: Average annual contributions* to personal and stakeholder pensions, by status and earned income, 2003/04
- Employees pay more into personal pensions
- Self-employed workers pay more into stakeholder pensions than personal pensions
- New business – Trends
- Stakeholder pensions have captured market share of new business
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- Figure 20: Value (APE)* of new individual pensions business, by product type, 2000-05
- Contributions to individual pensions have remained static over the past four years
- The number of new contracts is falling rapidly, but the value of contributions is up
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- Figure 21: New business – number of individual pensions contracts arranged, 2000-05
- Figure 22: New business – all individual pensions, 2000-05
- Regular premiums
- Single premiums
- Standard personal pensions – new contracts down by 70% over the past five years
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- Figure 23: New business – standard personal pensions, 2000-05
- Personal pensions – regular-premium contracts decreased most
- Stakeholder pensions have cannibalised standard personal pensions
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- Figure 24: Individual stakeholder pensions, 2000-05
Key Players
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- The top five players account for roughly half of personal pensions business
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- Figure 25: Pension providers in order of business ranking, by total* UK net written premiums**, 2003 and 2004
- Aviva is largest player in individual pensions
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- Figure 26: Individual pensions business – rankings based on total uk net premiums, 2003 and 2004
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- Figure 27: Market share of Top five, ten and 20 in individual pensions business, 2003 and 2004
Distribution and Advice
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- Buying with or without advice is key distinction
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- Figure 28: Distribution of new individual pensions** business, APE 2000-05
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- Figure 29: Distribution of standard personal pensions and stakeholder pensions, Q3 2005
- Stakeholder pensions and the Basic Advice process
- Depolarisation creating a new breed of distribution channel
- Menu of services providing clarity or confusion?
- Research shows that multi-tied channels will be increasingly popular
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- Figure 30: ‘Which of the following reasons has stopped you from taking personal advice on financial products?’, 2005
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- Figure 31: Responses to ‘If you wanted to get financial advice tomorrow, where would you look or go to first to find out how to get it?’ (Prompted), 2005
- Online distribution is difficult with a complex product
- Corporate distribution strategies are increasingly reliant on multi-platform distribution
Advertising and Promotion
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- Figure 32: Pensions media coverage, 2004-06
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- Figure 33: Share of pensions advertising, by outlet, December 2004-November 2005
- Note on methodology
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- Figure 34: Top 20 pension advertising spenders, December 2004-November 2005
- Advertising expenditure has focused on niche products (not personal and stakeholder pensions)
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Consumer Financial Activity
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- The mood of the consumer seems uncertain
- Relationship with the main financial services providers
- Overall activity levels should be high
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- Figure 35: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2004-December 2005
- Middle earners are becoming more active
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- Figure 36: Expected financial activity, by socio-demographic and income groups, December 2005 and average for the last 16 quarters
- Pension management and saving will be the main activities
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- Figure 37: Leading financial activities planned in the next six months, December 2004-December 2005
- Subdued time for the property market
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- Figure 38: Intended mortgage and property purchase activity, December 2003-December 2005
- HSBC gains in terms of MFSP share
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- Figure 39: Leading main financial services providers: market shares, December 2004-December 2005
- HSBC will build up the level of its deposits in 2006
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- Figure 40: Saving, investment and lending market sizes, by expected customer demand and brand leaders (overall % intending to undertake activity in brackets), December 2005
- HSBC will have the most active customer base
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- Figure 41: Activity levels of main financial providers’ customer bases, December 2005
- Halifax, HSBC and Nationwide BS have the highest proportion of savers
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- Figure 42: Activity intentions and current household financial situation, by MFSP, December 2005
The Consumer and Product Ownership
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- Retirement product ownership
- Occupational pension ownership is the most common
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- Figure 43: Pension ownership, January 2006
- Implications – pension providers could capture a slice of the ISA market
- Women aged 25-34 are under-represented in their pension ownership
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- Figure 44: Pension ownership, by gender, age and socio-economic group, January 2006
- Implications
- Target ‘unmarrieds’ in the higher and middle income groups
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- Figure 45: Pension ownership, by marital status, lifestage, age/socio-economic group and tenure, January 2006
- Implications
- Pension message needs to get through to the Urban Prosperity group
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- Figure 46: Pension ownership, by working status, annual income, TV region and ACORN category, January 2006
- Implications
- Iceland shoppers may be good savers and are under-represented in pension ownership
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- Figure 47: Pension ownership, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, January 2006
- Implications
- Level of pensions contributions and retirement savings
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- Figure 48: Levels of retirement saving, January 2006
- Market to consumers by their natural thresholds
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- Figure 49: Levels of retirement saving, by gender, age and socio-economic group, January 2006
- Implications
- The pre-/no family group can probably afford to save more than they are
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- Figure 50: Levels of retirement saving, by marital status, lifestage, age/socio-economic group and tenure, January 2006
- Those in the Urban Prosperity category could save more
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- Figure 51: Levels of retirement saving, by working status, annual income, TV region and ACORN category, January 2006
- Broadsheets are key to those saving over £300 per month
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- Figure 52: Levels of retirement saving, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, January 2006
- Implications
- Levels of regular saving by retirement product
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- Figure 53: Pension product ownership versus and amounts saved (contributions by retirement product), January 2006
- Further analysis
Consumer Attitudes and Targeting Opportunities
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- Attitudes towards retirement saving
- 25-34-year-olds don’t think they are too young for pension planning
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- Figure 54: Attitudes towards retirement saving, January 2006
- Implications
- Are the 25-34-year-olds starting to feel guilty about not starting a scheme?
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- Figure 55: Attitudes towards retirement saving, by gender, age and socio-economic group, January 2006
- Implications
- Marriage matters
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- Figure 56: Attitudes towards retirement saving, by marital status, lifestage, age/socio-economic group and tenure, January 2006
- Target the Urban Prosperity group for ‘with advice’ products
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- Figure 57: Attitudes towards retirement saving, by working status, annual income, TV region and ACORN category, January 2006
- Implications
- Go to Iceland to shift ‘without advice’ products
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- Figure 58: Attitudes towards retirement saving, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, January 2006
- Implications
- Reasons for not investing in pensions
- Is ‘no spare money’ the real reason for not investing?
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- Figure 59: Reasons for not investing in pensions, January 2006
- Implications
- Young women trust more
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- Figure 60: Reasons for not investing in pensions, by gender, age and socio-economic group, January 2006
- Implications
- Families who don’t have any current provision don’t have spare cash
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- Figure 61: Reasons for not investing in pensions, by marital status, lifestage, age/socio-economic group and tenure, January 2006
- Implications
- Londoners have more money and trust pension companies more than average
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- Figure 62: Reasons for not investing in pensions, by working status, annual income, TV region and ACORN category, January 2006
- Implications
- Mid-market tabloid readers trust less, but are less likely to cite ‘no spare money’ for their lack of pension provision
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- Figure 63: Reasons for not investing in pensions, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, January 2006
- Lack of trust converts into ‘alternative investment’ behaviour
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- Figure 64: Reasons for not investing in pension products versus type of retirement provision expected to be relied upon, January 2006
- Implications
- Further statistical analysis
- Repertoire analysis shows personal pension owners are more active
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- Figure 65: Repertoire analysis of consumers’ retirement saving products, January 2006
- Repertoire analysis shows that affordability perceptions need to be broken down
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- Figure 66: Number of reasons given by consumers for not currently investing in retirement saving products, January 2006
- CHAID analysis showing target groups
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- Figure 67: Consumer groups with the highest penetration (rate of take-up), by pension product type, January 2006
- Cluster analysis identifies consumer-based typologies
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- Figure 68: Cluster group distribution for personal and stakeholder pension typologies, January 2006
- Satisfied and Sorted (27%)
- Active Amenables (28%)
- Toe Dippers (26%)
- Young, Gifted and Broke (19%)
- Socio-demographic analysis of clusters
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- Figure 69: Clusters, by gender, age and socio-economic group, January 2006
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- Figure 70: Clusters, by marital status, lifestage and tenure, January 2006
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- Figure 71: Clusters, by working status, income group, TV region and ACORN category, January 2006
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- Figure 72: Clusters, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, January 2006
- 75% feel that it is unrealistic to depend only on the state pension during retirement
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- Figure 73: ‘It is unrealistic to depend only on the state pension for an income retirement’, by socio-economic group, December 2005
- As potential customers get older they are less willing to extend their retirement age
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- Figure 74: ‘I am willing to work beyond 60 (female retirement age) to provide myself with a higher retirement income’, female responses, by age, December 2005
- Older workers are hanging on in there?
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- Figure 75: ‘I am willing to work beyond 65 (male retirement age) to provide myself with a higher retirement income’, male responses, by age, December 2005
- Implications
Industry Views
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- A-day implications (pensions simplification)
- Pensions pricing and transfer market
- Future business development challenges
The Future
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- Population dynamics will underpin demand for private pension provision
- Public pension provision will not be enough – the message will get through
- Economics may favour pension saving in the future
- There will be fewer products and these will be differentiated by advice
- The NPSS is the great unknown
Forecast
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- Figure 76: Forecast of new individual pension business in the UK, 2005-10
- Regular long-term savings expected to remain unpopular
- Spending priorities due for a reality check?
- Sensitivity analysis
- Factors used in the forecast
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