Table of Contents
Issues in the Market
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- Key issues
- Market definitions
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- Figure 1: Types of private pension provision, UK
- Occupational schemes
- Defined-benefit (salary-related) schemes
- Defined-contribution (money-purchase) schemes
- Other work-related pensions
- Other definitions
- Abbreviations
Insights and Opportunities
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- Strong employer interest in finding third-way solutions
- Swap pay for pension benefits
- Huge scope to develop the contract-based group sector
- Room to improve communication and access to advice
- Members must be more proactive
- Personal accounts promise to dramatically boost pension participation
- Projected size of the target market
Market in Brief
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- Active membership continues to recede
- Scheme administration and funding
- New insurance-administered business up strongly in 2006
- Improvements in the equity and bond markets help to reduce deficits
- Regulatory changes boost appeal of outsourcing
- Product developments centre on risk-sharing solutions
- FTSE 100 firms run the largest private-sector schemes
- Top five players in the insurance-administered sector control three fifths of the market
- IFAs generate the lion’s share of insurance-administered sales
- Minimal above-the-line advertising
- An occupational scheme is the most common pension type
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- Figure 2: Proportion of adults who are active members of a pension, by type, April 2007
- Occupational DC scheme members have shorter investment terms
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- Figure 3: Number of years making pension contributions, by type of pension, April 2007
- Merely half of those with the freedom to switch funds actually do so
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- Figure 4: Attitudes and experiences of occupational pension scheme members, April 2007
- Promising public support for personal accounts
Fast Forward Trends
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- Trend 1: Meaning nuggets
- Definition
- Context
- Market touchpoints/implications
- Trend 2: Trust in me
- Definition
- Context
- Market touchpoints/implications
- Trend 3: Home as pension
- Definition
- Context
- Market touchpoints/implications
Broader Market Environment
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- Key points
- Greater inducement for people to save
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- Figure 5: Total PDI, consumer expenditure and savings, 2003-12
- Implication
- Steady economic growth
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- Figure 6: GDP annual growth and proportion of workforce unemployed – UK, 1997-2007
- Higher inflation requires pension savings to work harder
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- Figure 7: Average annual changes in the bank base rate, CPI and RPI – UK, 1997-2007
- Implication
- Asset allocation weighted towards equities
- Rising stock markets help to reduce pension fund deficits
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- Figure 8: FTSE 100 and FTSE All Share – daily index movements, May 1997-May 2007
- Implication
- What does this mean for the future of DB schemes?
- Could some schemes reopen?
- Corporate UK needs to wake up to the longevity risk
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- Figure 9: Cohort life expectancy at age 60, by gender, 1981-2054
- Implication
- Recommendation
- An ageing population puts greater stress on pension funds
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- Figure 10: Projected size of the UK population, by age band, 2007-44
- Implication
- New age discrimination laws means more workers will retire later
Internal Market Environment
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- Key points
- A pension forms an integral part of the benefits package
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- Figure 11: Top five company benefits and top five most desired, January 2007
- Most common type is still a final-salary pension
- Routes to closure
- PPF levy is an extra cost burden
- Reducing pension liabilities
- The Money-purchase movement
- Transfer of risk
- Contribution rates are much lower for DC schemes
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- Figure 12: Employer and employee contribution rates for active members of private-sector occupational pension schemes, by type of scheme, 2004 and 2005
- Apathy reigns
- Few employees keep track of their fund’s performance
- Implication and recommendation
- A minority of workers shun or defer joining the company scheme
- Implication and recommendation
- Pensions simplification
- Admin upheaval for trustees and administrators
- New opportunities for life and pensions companies
- Further reform
- The Pensions Regulator exerts its influence
- Trigger points
- Improving trustee knowledge
Competitive Context
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- Pension substitutes
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- Figure 13: Summary of retirement funding strategies
- Growing number of amateur property investors
- The pension-ISA combo
- Equity release provides a solution for some
Strengths and Weaknesses in the Market
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- Figure 14: Occupational/group pensions – SWOT analysis, 2007
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Who’s Innovating?
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- Key points
- New pension structures offer a third-way solution
- Employers support the promotion of new risk-sharing schemes
- Salary sacrifice
- Personal accounts are set to shake up the pensions market
- Providers unhappy about the low charges
- Scheme will benefit 6-10 million workers
- Employer resistance
- Some existing schemes could upgrade…
- … but others could trade down
- Will they stifle or support innovation?
Trade Perspective
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- About the participating companies
- A-Day impact
- The future of DC schemes is contract-based…
- …which are cheaper and entail less regulation
- Bleak future for DB schemes
- Pension providers give a cautious thumbs up to personal accounts
Scheme Size and Membership
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- Key points
- Private-sector schemes in decline
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- Figure 15: Number of private-sector occupational pension schemes in the UK, by scheme size, 2002-06
- Implication
- Just 6% of private-sector employers run an occupational scheme
- Only half the number of private-sector schemes were open in 2006
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- Figure 16: Status of private-sector schemes, 2006
- DC schemes make up the majority of occupational pensions
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- Figure 17: Number of private-sector occupational schemes, by benefit structure and size band, 2005
- Active membership has also declined over the past decade
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- Figure 18: Number of private-sector occupational scheme members, 1995-2006
- Note on double counting
- Three in four members were contracted out in 2006
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- Figure 19: Active members of private-sector schemes, by route to being contracted-out, 2006
- One in ten active members were paying AVCs in 2005
- Public-service sector
Value of Funded Pensions
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- Key points
- Framework for workplace pensions
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- Figure 20: Types of workplace pension, 2007
- Outsource or in-house?
- The self-administered sector is the largest in value
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- Figure 21: Value of assets in funded pensions, 1997-2005
- Implication
- A note about the data
Pension Contributions
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- Key points
- Employers up their contributions to reduce deficits
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- Figure 22: Contributions to private pension schemes – UK, 2001-05
Insurance-Administered Sector
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- Key points
- In-force business continues to decline
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- Figure 23: Insurance-administered occupational pension business in force, 2001-05
- Lump-sum investment drives new business growth…
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- Figure 24: New insurance-administered occupational pension business, 2001-06
- …mainly in the area of TIPs and buyouts
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- Figure 25: New insurance-administered occupational pension business, by sub-sector, 2005 and 2006
- Providers take the long view to the buyout market
- Single-premium business will continue to grow strongly
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- Figure 26: Forecast of new insurance-administered occupational business, 2006-11
- In-force GPP business
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- Figure 27: GPP business in force, 2001-05
- New GPP sales soar
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- Figure 28: New GPP business, 2001-06
- Implication
- New GPP business set to rocket
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- Figure 29: Forecast of new GPP business, 2006-11
- Factors incorporated
Market Share
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- Key points
- Prudential tops the rankings in the insurance-administered sector
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- Figure 30: Top 20 insurance companies in the occupational pensions market, by net premiums, 2004 and 2005
- Individual pensions sector
- The largest plcs are among the largest employers in the UK
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- Figure 31: The top 20 listed companies by market capitalisation, January 2007
Companies and Products
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- Supply structure
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- Figure 32: The main participants in the occupational pensions market
- Employers
- Insurance companies
- Prudential
- Legal & General
- Standard Life
- Investment management
- Pensions IFAs
- Benefit consultants
- Other professional services
Brand Communication and Promotion
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- Key points
- Pensions adspend dips following A-Day
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- Figure 33: Total advertising expenditure on pension and annuity products, 2005-07
- Limited use of consumer advertising…
- …but investment is likely to rise over the coming years
- Hargreaves Lansdown tops the pensions advertiser rankings
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- Figure 34: Advertising expenditure by the top ten pensions advertisers, 2006 and 2007
Channels to Market
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- Key points
- Most group pension business is sold with advice
- Non-intermediated channel represents a small but growing share of new regular-premium group pensions business
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- Figure 35: Distribution breakdown of new insurance – administered occupational pension business – regular premium, 2001-06
- IFAs win the lion’s share of single-premium group pensions business
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- Figure 36: Distribution breakdown of new insurance – administered occupational pension business – single premium, 2001-06
- Implication
Consumer Financial Activity
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- About the Financial Activity Bulletin
- Expected activity picks up
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- Figure 37: Expected financial activity – savings, investment, borrowing and debt repayment, December 2005-March 2007
- Much greater emphasis on saving than spending
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- Figure 38: UK savings and spending indices, January 2001-March 2007
- Activity remains subdued across most demographic segments
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- Figure 39: Expected financial activity over the next six months, by socio-demographic and income groups, March 2007
- Paying into a pension is a forthcoming financial priority, say one in four adults
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- Figure 40: Top five financial activities planned in the next six months, March 2006-March 2007
The Consumer – Pension Participation
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- Key points
- Survey background
- Less than a third of non-retired adults are members of an occupational pension
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- Figure 41: Proportion of adults who are active members of a pension, by type, April 2007
- Paid-up pensions
- Transfers made easier
- One in ten occupational scheme members are saving in a personal pension
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- Figure 42: Cross-analysis of pension types, April 2007
- Small decline in those contributing to DB schemes
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- Figure 43: Proportion of adults who are active members of a pension, by type, 2006 and 2007
- Implication
- Shift in the direction of SIPPs
- Implication
- Still much confusion over pension type
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- Figure 44: Proportional split of occupational schemes, by benefit type, 2006 and 2007
- Implication
- Gender gap is much narrower in the occupational pension sector
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- Figure 45: Proportion of adults who are active members of a pension, by type and by gender, age, socio-economic group, marital status, lifestage and Special Group, April 2007
- Implication
- Pension participation peaks in the 45-54 age group
- Implication
- Ownership levels are highest among the wealthier groups
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- Figure 46: Proportion of adults who are active members of a pension, by type and by tenure, working status, gross annual household income, ACORN category and region, April 2007
- Implication
- Raise awareness and build the brand via broadsheet ads
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- Figure 47: Proportion of adults who are regularly contributing to a pension, by type and by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, April 2007
- Implication and opportunity
- CHAID analysis
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- Figure 48: Target groups identified for the occupational and personal pensions markets, April 2007
- Driver 1: employment
- Driver 2: income
- Driver 3: age
- Implication and opportunity
The Consumer – Length of Contributions
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- Key points
- DB scheme members have been saving for longer than their DC counterparts
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- Figure 49: Number of years making pension contributions, by type of pension, April 2007
- Implication
- Sharp fall in the proportion of new joiners to occupational schemes
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- Figure 50: Number of years making occupational pension contributions, 2006 and 2007
- Implication
- A small proportion of adults have left starting a pension late
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- Figure 51: Number of years making pension contributions, by gender, age and socio-economic group, April 2007
- Implication
The Consumer – Attitudes and Experiences
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- Key points
- Around half of occupational scheme members were auto-enrolled
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- Figure 52: Attitudes and experiences of group pension scheme members, April 2007
- Implication
- DB schemes have greater pulling power
- Implication: employer contributions are essential
- One in eight members have the option to the select their own funds
- Implication
- Inform and educate to engage members
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- Figure 53: Cross-analysis of attitudes and experiences of group pension scheme members, April 2007
- Implication
- C2DEs are less enthused about their pension
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- Figure 54: Attitudes and experiences of group pension scheme members, by gender and socio-economic group, April 2007
- Younger members particularly need better access to info and advice
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- Figure 55: Attitudes and experiences of group pension scheme members, by age group, April 2007
- Implication
- Recent joiners are more likely to have a choice of funds
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- Figure 56: Attitudes and experiences of group pension scheme members, by length of time making contributions, April 2007
The Consumer – Personal Accounts
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- Key points
- More people are for than against the idea
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- Figure 57: Attitudes towards personal accounts, by pension savers and non-pension savers, April 2007
- Two fifths of workers say they’d opt out
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- Figure 58: Attitudes towards personal accounts, by working status, April 2007
- A small minority are concerned about the cost implications
- The projected size of the target market for personal accounts
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- Figure 59: The size of the non-saver target market, April 2007
- Exemptions
- One in ten among the target market are not in favour
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- Figure 60: Attitudes towards personal accounts, by the target market for personal accounts, April 2007
- Three fifths of the target group are aged 25-44
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- Figure 61: Profile of the target market for personal accounts – part 1, April 2007
- Implication and recommendation
- Part-time workers are set to benefit
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- Figure 62: Profile of the target market for personal accounts – part 2, April 2007
- Implication and recommendation
- Three quarters of the target market are Internet users
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- Figure 63: Profile of the target market for personal accounts – part 3, April 2007
- Implication and recommendation
- Further analysis
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