Table of Contents
Introduction and Abbreviations
-
- Annuities face challenges as retirees live longer
- Scope of the report
- Key sources
- Global information and research
- Consumer research
- ACORN
- Abbreviations
- Definitions
- Definitions – developing products
Premier Insight
-
- Pension ownership patterns highlight the C1 target market
- Annuities? What are they?
- Annuities and emotions
Executive Summary
-
- Increasing life expectancy sustains demand but creates a problem for annuities rates
-
- Figure 1: Average life expectancy at 50 years and at 65 years, by gender, 1981-2020
- New triviality rules may significantly reduce the size of the annuities market
- Pension annuities have shown significant growth
-
- Figure 2: New pension annuities business, 2000-05
- Income drawdown becomes USP and ASP after A-day
- Single tie brokers are losing market share in annuities
-
- Figure 3: Distribution of annuity sales, by value, 2000-05
- The annuitant target group have a range of financial products
- Third agers with incomes of £35,000-49,000 are a key target market
- Annuities provide income for 11% of the existing pensioner base
- ABC1s aged 55+ are twice as likely to own an annuity as their C2DE counterparts
Market Background
-
- A-day may give more flexible arrangements for annuities and income drawdown
- All pensions now fall under a single tax regime
- Introduction of new annual and lifetime allowances
- Retirement age for taking private pension benefits will be increased
- More flexibility – allowing pensions while working
- Annuity and income drawdown options change
- Government White Paper will bring further changes after 2010
- Consumers’ needs from retirement income
-
- Figure 4: Needs from retirement income, 2004
- The pros and cons of annuities
-
- Figure 5: Advantages and disadvantages of annuities, 2006
Market Drivers
-
- Retirees draw income from a variety of sources in their retirement
-
- Figure 6: Gross income of pensioner couples, by source of income, 2003/04
- Increasing life expectancy expands the potential market for annuities
-
- Figure 7: Number of new retirees, 2001-10
- Increasing life expectancy also creates a problem for annuity rates
-
- Figure 8: Average life expectancy at 50 years and at 65 years, by gender, 1981-2020
- Base rates are also key in determining annuity rates
-
- Figure 9: Bank of England base rate, 1990-2006
- Downward pressure on annuity rates is a long term trend
-
- Figure 10: Consolidated stock average annual gilt yield, 1970-2004
- OMO and new product development may help to sustain or even raise rates
- Stock markets have recovered and pensions are less depleted – now may be the time to annuitise?
-
- Figure 11: FTSE 100 and the FTSE all share indices, January 1996-June 2006
- The decline of defined benefits may stimulate the annuities market
- Rising numbers of single-person households may reduce demand for joint annuities
-
- Figure 12: Number of one-person households, as a proportion of all households, 1993-2011
- Housing assets give consumers other options
- Legislation is fundamental to annuity market growth
- New triviality rules may significantly reduce the annuities market
-
- Figure 13: Number of individuals holding personal and stakeholder pensions (1), by employment status, annual earnings (2) and fund value, 2002/03
- Regardless of lack of compulsion, annuities may still be chosen as the best option
- Consumers will know more about the open market option
- OMO becomes available in the occupational market (DC schemes) post-A-day
- The White Paper endorses annuities and the NPSS will stimulate the market
- Other regulatory issues
- Annuities form part of a wider retirement income strategy
- Income drawdown changed after A-day
- Unsecured pensions for the more affluent
- Alternatively secured pensions
- Summary
Market Size and Trends
-
- The consumer market for annuities is based on individual and occupational pensions
- Pensions held by the UK adult population
-
- Figure 14: Pension provision of the UK adult population, 1995-2005
- What proportion of occupational scheme members are in the market for an annuity?
- There are 12.5 million individual pension plans in force
-
- Figure 15: Individual pension business in force at year end (OB), 2004
- Annuities in force analysis shows strong growth in pension annuities
-
- Figure 16: Annuity payments per annum, 1983-2004
- In 2004 in force pension annuities accounted for almost 91% of all annuities
-
- Figure 17: Annuity payments per annum in the UK, 2004
- New business trends in the annuity market
- Annuity demand is increasing (in general) as baby boomers mature
-
- Figure 18: New pension annuities business, 2000-05
- A third of new pension annuity contracts are from ‘external’ sources – revealing consumers who ‘switched’
-
- Figure 19: New business in the retirement income market analysed by internal and external measures, 2005
- Demand for purchased life annuities evaporates as rates continue their downward spiral
-
- Figure 20: New business in single-premium purchased life annuities, 1995-2005
- Income drawdown remains a niche sector in the insured retirement income market
- Growth in income drawdown market has slowed
-
- Figure 22: Value and volume of new income drawdown policies, 2000-05
- Drawdown is for the wealthy
- Income drawdown becomes USP and ASP after A-day
- Point-of-need sector is expanding
-
- Figure 23: Single premium point-of-need long-term care policies, by volume and value, 2000-05
Key Players and Products
-
- The largest pension providers are in the best position
-
- Figure 24: Individual pensions business rankings, based on total net premiums written, 2004
- Income from an annuity increases the later it is taken
-
- Figure 25: Monthly income from selected annuities – single-life £50,000 annuity, July 2006
- Joint annuity rates are lower in comparison to single rates
-
- Figure 26: Monthly income from selected annuities – joint life £50,000 annuity, July 2006
- Other types of annuity products
- Increasing annuities
- Enhanced (impaired life) annuities
- Guaranteed period annuities (5 or 10 year)
- Investment-based annuities (linked or with-profits annuities)
- Short-term annuities
- Income drawdown
- Unsecured pensions
- Alternatively secured pensions
- Phased retirement
- Who provides?
Distribution
-
- Single-tie brokers are losing market share in annuities
-
- Figure 27: Distribution of annuity sales, by value, 2000-05
- Consumers are increasingly seeking independent advice on income drawdown
-
- Figure 28: Distribution of income drawdown sales, by value, 2000-05
- IFAs are increasingly key to the purchased life annuities market
-
- Figure 29: Distribution of purchased life annuity sales, by value, 2000-05
- The Internet provides information only
Consumer Financial Activity
-
- Consumers looking to save and invest
- Relationship with the main financial services providers
- Overall activity levels will fall slightly
-
- Figure 30: Savings, investment, borrowing and debt repayment – consumers’ expected activity, December 2004-March 2006
- C2s will display higher than average financial activity levels
-
- Figure 31: Expected financial activity, by socio-demographic and income groups, March 2006 and average for the last 17 quarters
- ISA season will be fruitful for providers
-
- Figure 32: Leading financial activities planned in the next six months, March 2005-March 2006
- Slower activity ahead for the property market
-
- Figure 33: Intended mortgage and property purchase activity, March 2004-March 2006
- Lloyds TSB sees its position weaken slightly
-
- Figure 34: Leading main financial services providers: market shares, March 2005-March 2006
- RBS will feature strongly in the savings/deposits sector
-
- Figure 35: Saving, investment and lending market sizes, by expected customer demand and brand leaders (overall % intending to undertake activity in brackets), March 2006
- Bank of Scotland and RBS will have the most active customer bases
-
- Figure 36: Activity levels of main financial services providers’ customer bases, March 2006
- HSBC and Halifax customers looking to borrow more
-
- Figure 37: Activity intentions and current household financial situation, by MFSP, March 2006
The Consumer and Product Ownership
-
- Financial product ownership for the retired and nearly retired – the wider context
-
- Figure 38: Financial product ownership among key consumer segments, May 2006
- Implications
- Pension products are key to retirement income
-
- Figure 39: UK pension contributions/ownership, May 2006
- Implications
- Pensions are most popular among ABs and C1s
-
- Figure 40: Pension contributions/ownership by gender, age and socio-economic group, May 2006
- Implications
- Those with household incomes of £35K-50K form the key customer base
-
- Figure 41: Pension ownership by lifestage, working status, gross annual household income and tenure, May 2006
- Implications
- ABC1 35-54-year-olds are more likely to have occupational schemes than their C2DE counterparts
-
- Figure 42: Pension ownership by ACORN group, age/socio-economic category and newspaper readership, May 2006
- Implications
- Annuities provide income for 11% of the retired sub-sample
-
- Figure 43: Sources of retirement income for current retirees, May 2006
- Implications
- C1s are the most likely group to draw on annuities
-
- Figure 44: Sources of retirement income for current retirees, by gender, age and socio-economic category, May 2006
- Implications
- Retired couples are twice as likely to have an annuity as retired singles
-
- Figure 45: Sources of retirement income for current retirees, by lifestage and tenure, May 2006
- ABC1s aged 55+ are twice as likely to own an annuity as their C2DE counterparts
-
- Figure 46: Sources of retirement income for current retirees, by ACORN group, age/socio-economic category and newspaper readership, May 2006
- Implications
- TV advertising will not reach annuitant consumer markets
-
- Figure 47: Sources of retirement income for current retirees by new technology use, commercial TV viewing, TV region and supermarket usage, May 2006
- Annuitants have savings
-
- Figure 48: Retirees’ financial product ownership crossed with retirement income solutions, May 2006
- Implications
Consumer Attitudes and Targeting Opportunities
-
- Many adults have never heard of an annuity and very few know their qualities
-
- Figure 49: Attitudes towards annuities among the non-retired, May 2006
- Implications
- Attitudes to annuities are informed by age and free advice is key
-
- Figure 50: Attitudes towards annuities among the non-retired, by gender, age and socio-economic category, May 2006
- Implications
- The wealthy are more loyal – capture their pensions business and the annuity will follow
-
- Figure 51: Attitudes towards annuities among the non-retired, by lifestage, working status, gross annual household income and tenure, May 2006
- Implications
- Popular tabloid readers are least informed
-
- Figure 52: Attitudes towards annuities among the non-retired, by ACORN category, age socio-economic group, daily newspaper readership, May 2006
- Those in London and the South are more likely to pay for independent advice
-
- Figure 53: Attitudes towards annuities among the non-retired, by new technology use, commercial TV viewing, TV region and supermarket usage, May 2006
- Implications
- Annuities can protect retirees’ other assets – communicate this
-
- Figure 54: Attitudes towards possible annuity product changes, May 2006
- Implications
- Existing retirees are not bothered about switching but watch out for the next generation
-
- Figure 55: Attitudes towards greater flexibility in switching annuity providers, May 2006
- Implications
- ABs are most concerned about passing on annuity assets after death
-
- Figure 56: Attitudes towards passing on annuitised assets, May 2006
- Cluster analysis
- Consumer Typologies
- Oblivious (72% of respondents)
- Loyal or Lazy (9% of respondents)
- Consulting Adults (19% of respondents):
- Lower socio-economic groups and the young are Oblivious
-
- Figure 57: Consumer typologies by gender, age and socio-economic category, May 2006
- Implications
- Married consumers are more active, while singles may need more advice
-
- Figure 58: Consumer typologies by marital status, lifestage (detailed), gross annual household income and ACORN category, May 2006
- Implications
- IFAs should canvass Marks & Spencer and Waitrose shoppers
-
- Figure 59: Consumer typologies by new technology use, commercial TV viewing and supermarket use, May 2006
- Implications
- Loyal or Lazy are the key market for personal and stakeholder pensions
-
- Figure 60: Types of pension products contributed towards by cluster group, May 2006.
- Implications
- Those with a private pension typically have a number of income sources
-
- Figure 61: Repertoire analysis of retirees’ sources of income, May 2006
- Implications
Industry Views
-
- Pressure on annuity rates will continue but providers may change asset allocation
- Product development in annuities will be driven by the need to counter low annuity rates
- Developments in income drawdown will have a minimal impact on the annuities market in the short term
- Triviality may encourage some to take cash rather than annuitise their funds
- NPSS will bring greater demand for annuities in the long term
- Developing new pricing methods and more flexible products in response to low annuity rates is key challenge for the future
- Working towards solutions that fit the reality of modern retirement
The Future
-
- Demand drivers of annuities into the future
- Threats to demand for annuities
- The structure of the market will change to be more flexible
Forecast
-
- Number of new pension annuities set to grow by 12% to 2011
-
- Figure 62: Forecast of new pension annuities business, 2005-11
- A-Day implications may create more business for income drawdown policies
-
- Figure 63: Forecast of new income drawdown policies, 2005-11
- Forecast methodology
Back to top