Table of Contents
Introduction and Abbreviations
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- Putting savings in context…
- …while examining the rapidly changing pensions environment
- Understanding consumer attitudes towards retirement planning
- Market definitions
- Key sources
- Global information and research
- Consumer research
- ACORN
- Abbreviations
Premier Insight
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- Scope for a female-oriented pension product?
- A need to engage with customers
- Is there room for a ‘retirement ISA’?
- Recognising different objectives
- Reaching the disinterested
Executive Summary
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- Real grounds for concern over retirement savings
- How large is the savings gap?
- And how is the government hoping to narrow it?
- Simplifying and refining the current regime
- An interesting economic climate…
- …teamed with a shift towards immediate consumption
- Employers still have a huge role to play
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- Figure 1: Monthly retirement savings, February 2006
- Signs of growing confidence in the stock market
- Cash savings steadily increasing…
- …while property becomes ever more important
- A significant proportion must rely on the state
- Supplementing traditional retirement savings vehicles
- Who to turn to when planning retirement?
- Consumers know that they will have to act
- Delaying retirement may be on the cards for many
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- Figure 2: Willingness to work beyond the state pension age, February 2006
- How can people be tempted to increase their savings?
- Is the pension still the best savings vehicle?
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- Figure 3: Agreement with the statement ‘A pension is still the best means to save for my retirement’, February 2006
- Headline figure suggests support for compulsion
- Soft retirement and simpler pension products could be the way forward
Changing Demographics and Working Patterns
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- In just three decades, the over-55s will account for more than a third of the population
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- Figure 4: UK population trends, by age group, 2006-36
- Growing life-expectancy drives increase in pensioner numbers
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- Figure 5: Trends in life-expectancy at birth, 1901-2041
- Figure 6: Life-expectancy at birth and selected ages, by sex, 1981-2001
- State spending projections suggest falling par capita incomes for pensioners
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- Figure 7: State spending on pensions as a percentage of GDP, 2003/04-2053/54
- Extending the working life
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- Figure 8: Employment in the over-50s, by gender and age, 1979-2004
- Is economic activity more relevant than the dependency ratio?
- ‘Soft retirement’ further reducing the dependency ratio?
Quantifying the Savings Gap
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- Non-financial assets account for most of the household sector’s wealth
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- Figure 9: Composition of household wealth, 2004
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- Figure 10: Household balance sheet, 1998-2004
- Measuring existing pension arrangements
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- Figure 11: Pension provision of UK adult population, 1994-2004
- Three in ten working adults are non-savers…
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- Figure 12: Current pension accrual, November 2005
- …and one in seven are under-saving
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- Figure 13: Main types of savers, November 2005
- The IFS suggests that many look set to fall short of benchmark replacement rates…
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- Figure 14: Projected pension replacement rate among over-50s who are currently in paid work
- …and even optimistic assumptions show a significant shortfall
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- Figure 15: Percentage of individuals predicted to have income below the Pension Credit Guarantee when they reach the state pension age
- Putting a financial value on the size of the savings gap
- Pensions crisis? What crisis?
- Refocusing the debate on the ‘economic support ratio’…
- …and questioning the importance of saving
- A powerful argument, but questions remain
Simplification and Streamlining – Reforming Pension Legislation
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- Stakeholder pensions start the process of pensions simplification…
- …although the target market, arguably, remains largely unimpressed
- Expanding on the stakeholder scheme…
- …and ‘tweaking’ the stakeholder features
- A-day – consolidating decades of pension legislation
- Changing contribution limits offer greater flexibility for investors
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- Figure 16: Current annual contribution limits for personal and stakeholder pensions, 2005
- Figure 17: Expected post-A-day annual contribution limits, 2006/07-2010/11
- More fundamental changes to be seen in the post-A-day market
- Relaxation in annuity regulations should appeal to many
- Annuity variants address criticisms over flexibility and inheritability…
- …but their potential impact remains debatable
- Rebuilding trust in the pensions industry
- The Turner Report – combating the savings gap
- Reforming existing state pensions provision
- National Pensions Savings Scheme (NPSS) – a new mechanism for saving
- Full implications of the Turner Report are, as yet, unclear
The Savings and Investment Environment
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- A new period of low interest rates…
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- Figure 18: Bank of England base rate, 1995-2006
- …offering both advantages and disadvantages to those saving for retirement
- Could low inflation actually exacerbate the savings gap?
- Competitive pressures lead to shifting real rewards for savers and borrowers
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- Figure 19: Effective real interest rates, instant access deposit account, credit card and standard variable-rate mortgage, 1996-2005
- The average high street savings account produces negative returns…
- …while the real cost of borrowing has tumbled…
- …which will, in turn, impact upon how consumers plan for their retirement
- A quiet recovery in the equities market…
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- Figure 20: FTSE 100 index, 1996-2005
- …but many are still suffering from the after-effects
- Is steady growth enough to attract mainstream attention?
- The impact of gilt yields
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- Figure 21: Annual gilt yields, 1976-2005
Consumer Spending, Saving and Borrowing Behaviour
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- Real disposable income increases steadily
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- Figure 22: Total PDI, consumer expenditure, savings and the savings ratio, 2000-10
- Pensions – or clothes?
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- Figure 23: Average weekly expenditure on selected items, 2004/05
- Retirement savings appear to rank fairly low in the list of consumer priorities
- Consumers envisage significant investment activity…
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- Figure 24: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2004-December 2005
- …with pensions contributions being high on the list of priorities
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- Figure 25: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2004-December 2005
- Good intentions do not necessarily translate into actions
- Has cheap credit helped fuel a ‘live for today’ attitude?
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- Figure 26: Consumer credit gross lending, by product category, 2001-05
- A debt time bomb to rival the demographic dangers…
- …and one that could have a major impact
- Remortgaging – the pawnshop of the 21st Century?
- Further advances half as high again as individual pension contributions
- A combination of factors hint at a shift in priorities
- Pension adspend tumbles…
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- Figure 27: Pension adspend, 2000/01-2004/05
- …and overall spending highlights just where advertisers’ priorities lie
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- Figure 28: Total financial services adspend, by product type, year to November 2005
- Can pension providers compete with the consumer giants’ advertising budgets?
- Trust in providers – and the government – is still an issue
- Constantly changing regulations leave many confused
Present Pension Arrangements
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- State pensions offer a fairly meagre income…
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- Figure 29: Weekly state pension levels, 2005/06 tax year
- …although the Pension Credit offers some assistance
- Employers, not employees, the biggest contributors to pension schemes
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- Figure 30: UK contributions to private pension schemes, 1996-2004
- Private pension provision still leaves much to be desired
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- Figure 31: Participation in private pension schemes, 2003/04
- Contribution levels are relatively low…
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- Figure 32: Monthly retirement savings, February 2006
- …leading to a high number of small funds
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- Figure 33: Number of individuals holding personal and stakeholder pensions (1), by employment status, annual earnings (2) and fund value, 2002/03
- Employer-sponsored pensions account for half of new individual pension business
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- Figure 34: New individual APE pension business, by product type, 2005
- New pension contributions show signs of recovery
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- Figure 35: New business – all individual pensions, 2000-05
- Standard personal pensions wane in popularity
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- Figure 36: New business – standard personal pensions, 2000-05
- Individual stakeholder sales slump in 2005
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- Figure 37: New business – individual stakeholder pensions, 2001-05
- Group schemes showing some progress
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- Figure 38: New business – GPPs and employer-sponsored stakeholder schemes, 2000-05
Equity Investments
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- ISAs offer a straightforward tax-free wrapper…
- …but consumers appear to be increasingly disenchanted
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- Figure 39: Equity ISA subscriptions, 1999/2000-2004/05
- Unit trust funds recovering after a difficult few years
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- Figure 40: Value of unit trust/OEIC funds under management, total and ISA funds, 1995-2005
- New appetite for equity investment
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- Figure 41: Gross retail sales of unit trusts and OEICs, 1996-2005
Cash Savings – The Low-Risk Option
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- More than 25 million savings accounts
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- Figure 42: Estimation of savings market size in terms of volume, November 2005
- Cash deposits steadily increasing
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- Figure 43: UK individual private sector holdings of selected Sterling assets, 1999-2004
- Instant access accounts growing in importance
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- Figure 44: Number of individual interest-bearing sight and time accounts and total sterling deposits at year-end (MBBG panel only), 1999-2004
- Mini cash ISAs start to replace standard savings accounts
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- Figure 45: Number of mini cash ISAs and amounts subscribed during year, 1999/2000-2004/05
- Retirement planning one of the key reasons for taking out an ISA
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- Figure 46: Key motivations for investing in an ISA, March 2005
- NS&I sales slow in 2004/05…
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- Figure 47: National Savings & Investments sales, 2003/04 and 2004/05
- …but account balances show steady increases
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- Figure 48: Total held in National Savings & Investments accounts, 2002/03-2004/05*
Funding Retirement Through Property
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- Private residential housing stock worth around £3.5 trillion…
- …highlighting its importance in the retirement savings landscape
- A decade of price rises
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- Figure 49: Average mix-adjusted property prices, 1995-2005
- For most homeowners, the increase in wealth is illusory – but not for retirees
- The mortgage market further highlights the importance of housing…
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- Figure 50: Gross new mortgage lending, 1997-2005
- …but also the risks of an unbalanced asset portfolio
- Remortgaging could have a major impact
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- Figure 51: Breakdown of new mortgage lending, 1995-2005
- Further advances – wiping out pension contributions at a stroke?
- Highlighting the importance of an holistic view of financial services
- Buy-to-let – a new weapon in the investor’s armoury…
- …with clear advantages when it comes to retirement saving
- Explosive growth – but signs that the boom is tailing off
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- Figure 52: Value and volume of new buy-to-let mortgage lending, 1999-2005
- More than 630,000 outstanding buy-to-let mortgages – and growing
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- Figure 53: Value and number of outstanding buy-to-let mortgages, 1999-2005
- Returns predicted to remain good for buy-to-let investors…
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- Figure 54: Rates of return on BTL properties, by cash purchase and geared investment, Q4 2003-Q4 2005
- …although the assumptions look fairly optimistic in today’s market
- Buy-to-let investors looking for capital, not necessarily income
- How much risk are prospective landlords exposing themselves to?
- Equity release – another way to make property pay
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- Figure 55: Total value of equity release sales by SHIP members, 1991-2005
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- Figure 56: Forecast of sales of the equity release schemes by SHIP members, 2005-10
- Equity release – ‘spending the kids’ inheritance’ on a grand scale
The Consumer – Ownership and Contributions
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- One in eight will be entirely reliant on the state in their retirement
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- Figure 57: Current pension provision, February 2006
- A new wave of company pensions
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- Figure 58: Current pension provision, by gender, age and socio-economic group, February 2006
- Affluent have far greater ownership of retirement savings vehicles
- Part-time workers are having to fend for themselves
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- Figure 59: Current pension provision, by TV region, working status and marital status, February 2006
- Broadsheet readers look to spread their investments
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- Figure 60: Current pension provision, by Mintel’s Special Groups, media usage and ACORN group, February 2006
- Iceland shoppers are the least likely to be saving
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- Figure 61: Current pension provision, by supermarket usage and commercial TV viewing, February 2006
- Almost half save less than £100 a month
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- Figure 62: Monthly retirement savings, February 2006
- Even higher contributors are not guaranteed a sizeable retirement income
- Men save significantly more than women
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- Figure 63: Current level of contributions to a pension or retirement savings vehicle each month, by gender, age and socio-economic group, February 2006
- Contributions are highest in London
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- Figure 64: Current level of contributions to a pension or retirement savings vehicle each month, by TV region, working status and marital status, February 2006
- Having a family can put contributions on hold
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- Figure 65: Current level of contributions to a pension or retirement savings vehicle each month, by Mintel’s Special Groups and media usage, February 2006
- Clear link between postcode and pensions
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- Figure 66: Current level of contributions to a pension or retirement savings vehicle each month, by ACORN category, supermarket usage and commercial TV viewing, February 2006
- Investing in the alternatives – does freedom of choice promote saving?
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- Figure 67: Current level of contributions to a pension or retirement savings vehicle each month, by choice of retirement savings vehicle, February 2006
- Cash is still king
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- Figure 68: Alternative means of funding retirement, February 2006
- Following the sun
- Property gaining ground on more traditional investments
- Alternative savings vehicles largely the preserve of the affluent
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- Figure 69: Alternative means of funding retirement, by gender and socio-economic group, February 2006
- The gender divide – risk or security?
- Taking time to prepare for retirement
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- Figure 70: Alternative means of funding retirement, by age, February 2006
- A North/South divide?
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- Figure 71: Alternative means of funding retirement, by TV region, February 2006
- Part-timers concentrate on cash savings
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- Figure 72: Alternative means of funding retirement, by working and marital status, February 2006
- A life of saving to reap its own rewards?
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- Figure 73: Alternative means of funding retirement, by Mintel’s Special Groups, February 2006
- Broadsheet readers – downbeat, but still comparatively well placed
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- Figure 74: Alternative means of funding retirement, by media usage, February 2006
- A place in the sun?
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- Figure 75: Alternative means of funding retirement, by supermarket usage and commercial TV viewing, February 2006
- Company pensions and security
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- Figure 76: Alternative means of funding retirement, by current pension contributions, February 2006
- Cash ISAs and stocks/shares are key secondary savings options
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- Figure 77: Repertoire of alternative means of funding retirement, February 2006
- Looking outside the financial services industry for advice
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- Figure 78: Sources of advice when arranging a pension, February 2006
- The affluent consider has a wider range of options
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- Figure 79: Sources of advice when arranging a pension, by gender and socio-economic group, February 2006
- Younger respondents are most likely to turn to the Internet
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- Figure 80: Sources of advice when arranging a pension, by age, February 2006
- Those with access to company schemes likely to trust their employer’s advice
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- Figure 81: Sources of advice when arranging a pension, by current contributions, February 2006
The Consumer – Expectations and Aspirations
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- Most realise that the state pension will not offer a comfortable retirement
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- Figure 82: Opinion of the adequacy of the state pension, February 2006
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- Figure 83: Opinion of the adequacy of the state pension, by gender, age and socio-economic group, February 2006
- Regional differences could reflect living costs
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- Figure 84: Opinion of the adequacy of the state pension, by region, working status and marital status, February 2006
- Using the ‘red tops’ to increase awareness
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- Figure 85: Opinion of the adequacy of the state pension, by Mintel’s Special Groups and media usage, February 2006
- A need to educate regular television viewers
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- Figure 86: Opinion of the adequacy of the state pension, by ACORN group, supermarket usage and commercial TV viewing, February 2006
- Early retirement is still a dream for two fifths of the UK
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- Figure 87: Plans for early retirement, February 2006
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- Figure 88: Plans for early retirement, by gender, age and socio-economic group, February 2006
- Southerners least likely to be planning early retirement
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- Figure 89: Plans for early retirement, by region, working status and marital status, February 2006
- Further evidence of pessimism among broadsheet readers
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- Figure 90: Plans for early retirement, by Mintel’s Special Groups and media usage, February 2006
- Waitrose shoppers are the best informed and most likely to plan to retire early
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- Figure 91: Plans for early retirement, by ACORN group, supermarket usage and commercial TV viewing, February 2006
- Considerable scope for legislating for ‘soft retirement’
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- Figure 92: Willingness to work beyond the state pension age, February 2006
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- Figure 93: Willingness to work beyond the state pension age, by gender, age and socio-economic group, February 2006
- Those in the South most prepared to stay in employment
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- Figure 94: Willingness to work beyond the state pension age, by region, working status and marital status, February 2006
- Broadsheet readers again show their concern over retirement income
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- Figure 95: Willingness to work beyond the state pension age, by Mintel’s Special Groups and media usage, February 2006
- Wealthy Achievers – affluent enough to not need to delay retirement?
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- Figure 96: Willingness to work beyond the state pension age, by ACORN group, supermarket usage and commercial TV viewing, February 2006
- Alternative investors look to beat the state pension age
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- Figure 97: Attitudes towards early retirement, state pension and working past the state pension age, by current pension contributions, February 2006
- Working themselves into an early grave?
The Consumer – Narrowing the Savings Gap
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- Risk – or trust – is the key issue
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- Figure 98: Factors that would encourage greater pension saving, February 2006
- More flexible regulations could increase contributions
- Creating incentives for pension saving
- Targeting the under-savers
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- Figure 99: Factors that would encourage greater pension saving, by gender and socio-economic group, February 2006
- Returns are key for younger respondents
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- Figure 100: Factors that would encourage greater pension saving, by age, February 2006
- North Westerners most resistant to increasing pension savings
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- Figure 101: Factors that would encourage greater pension saving, by TV region, February 2006
- Full-time workers particularly interested in property investments
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- Figure 102: Factors that would encourage greater pension saving, by working and marital status, February 2006
- Dual-income householders most likely to trade security for higher returns
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- Figure 103: Factors that would encourage greater pension saving, by Mintel’s Special Groups, February 2006
- Broadsheet readers and the quest for a comfortable retirement
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- Figure 104: Factors that would encourage greater pension saving, by media usage, February 2006
- Incentivising the shoppers
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- Figure 105: Factors that would encourage greater pension saving, by supermarket usage, February 2006
- Avid television viewers unlikely to increase their contributions without considerable encouragement
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- Figure 106: Factors that would encourage greater pension saving, by commercial TV viewing, February 2006
- Real disillusion with pensions
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- Figure 107: Agreement with the statement ’A pension is still the best means to save for my retirement‘, February 2006
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- Figure 108: Agreement with the statement ’A pension is still the best means to save for my retirement‘, by gender, age, socio-economic group and TV region, February 2006
- Are families wary of the inflexibility of traditional pensions?
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- Figure 109: Agreement with the statement ’A pension is still the best means to save for my retirement‘, by working status, marital status, Mintel’s Special Groups and media usage, February 2006
- Disillusion high among personal pension owners
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- Figure 110: Agreement with the statement ’A pension is still the best means to save for my retirement‘, by current pension contributions, February 2006
- Pension companies – can they be trusted?
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- Figure 111: Agreement with the statement ’I mistrust pension companies‘, February 2006
- Mistrust highest at the extremes of the social scale
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- Figure 112: Agreement with the statement ’I mistrust pension companies‘, by gender, age, socio-economic group and TV region, February 2006
- ABC1 families most wary of pension companies
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- Figure 113: Agreement with the statement ’I mistrust pension companies‘, by working status, marital status, Mintel’s Special Groups and media usage, February 2006
- Personal pension contributors further demonstrate their disillusionment
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- Figure 114: Agreement with the statement ‘I mistrust pension companies’, by current pension contributions, February 2006
- Almost half agree with compulsory pension saving
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- Figure 115: Agreement with compulsory pension saving, February 2006
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- Figure 116: Agreement with compulsory pension saving, by gender, age, socio-economic group and TV region, February 2006
- The retired are particularly keen on compulsion
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- Figure 117: Agreement with compulsory pension saving, by working status, marital status, Mintel’s Special Groups and media usage, February 2006
- Clear reluctance to be forced to start a pension
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- Figure 118: Agreement with compulsory pension saving, by current pension contributions, February 2006
- Cost is the biggest single reason for not starting a pension
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- Figure 119: Reasons for not starting a pension, February 2006
- Affordability key for the less affluent
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- Figure 120: Reasons for not starting a pension, by gender and socio-economic group, February 2006
- Time, not money, is key for the youngest respondents
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- Figure 121: Reasons for not starting a pension, by age, February 2006
- Scope for sales to younger, affluent consumers
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- Figure 122: Reasons for not starting a pension, by Mintel’s Special Groups, February 2006
- Does ‘I can’t afford to save’ just mean ‘I don’t want to save’?
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- Figure 123: ‘Everyday indulgences’, by reason for not saving, February 2006
- Foregoing a family holiday – and jumping to the top of the pension league
- Adding up the cost of ‘the little extras’
- Reframing contribution levels
The Future
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- A-day – the great imponderable
- Simplification should boost contributions…
- …but not necessarily the number of people who are saving
- Post-retirement options could tempt more investors…
- …but, again, the real impact remains in doubt
- Simplification will have no impact unless providers can engage consumers…
- …and consumers are unlikely to engage until they see good reasons for doing so
- Employer involvement will be crucial
- Will today’s pensioners serve as a warning?
- Soft retirement will help manage the transition
Forecast
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- Figure 124: Forecast of the house purchase and alterations market compared to personal pensions and funded/unfunded pension schemes markets, at current and constant prices, 2005-11
- Factors used in the forecast
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