Table of Contents
Issues in the Market
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- Key issues
- Report coverage and definitions
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- Figure 1: Overview of the annuity and retirement income market, 2008
- Common product types
- Single or joint life
- Cash lump sum
- Open market option
- Alternatives
- Pensions simplification and income drawdown
- Alternatively secured pensions
- Pension products
- Abbreviations
Insights and Opportunities
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- Educate and inform
- Test drive retirement
- Mix and match
- Cascade pensions down the generations
- Consolidate people’s pension pots for free
Market in Brief
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- Robust performance
- New sectors gaining ground
- A positive outlook
- Influential factors
- Personal accounts present new opportunities and concerns
- Customer inertia remains an issue
- Competitive environment
- Industry innovation
- Advisers play a key role in the dissemination of products
- Advertising activity picks up
- Summary findings of Mintel’s consumer research: pension ownership
- Retirement plans
- Low annuity awareness among the target audience
Fast Forward Trends
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- Trend 1: The Rise of Behavioural Economics
- See the issue from an irrational standpoint
- People need to be given the occasional nudge
- Too much choice is a bad thing
- Choice architecture
- Trend 2: Generation Name Game
- Maggie’s children face a tough financial future
- Proposals
- Education is at the heart of it
- Weighing up the costs of Money Guidance
Broader Market Environment
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- Key points
- The over-65s will account for a quarter of the UK population by 2046
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- Figure 2: Projected size of the UK population, by age band, 2008-46
- Implications
- Increasing life expectancy
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- Figure 3: Cohort life expectancy at age 65, by gender, 1985-2055
- Implications: Offloading risk
- Shorter assumed life expectancy has its benefits
- Falling share prices hit pension funds…
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- Figure 4: FTSE 100 and FTSE All Share indices– daily index movements, June 2000-June 2008
- Stormy outlook for some sectors
- …but higher bond yields drive up annuity rates
- Gilt yields are also up
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- Figure 5: Historical monthly medium, long and ultra long gilt yields, January 2000-June 2008
- The long-term view is less rosy
- Rising inflation erodes pensioners’ income and pushes up the cost of RPI-linked annuities
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- Figure 6: Average annual changes in the bank base rate, CPI and RPI – UK, 2000-08
- Implications and opportunities
Internal Market Environment
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- Key points
- Individual pension policies up by a fifth in a decade
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- Figure 7: Size of the defined-contribution pension pool, 1996, 2001-06
- Implications and opportunities
- Personal accounts will expand the DC pool…
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- Figure 8: The size of the target market for personal accounts, 2007 and 2012
- …but annuity providers have concerns
- Annuity rates have picked up over recent months, but the long-term trend points down
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- Figure 9: Annual annuity income and gilt rates, January 1990-July 2008
- Still too much consumer inertia
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- Figure 10: External versus internal volume sales of new pension annuities – proportional distribution, 2000, 2003 and 2005-07
- Implications and opportunities
- FSA clampdown
- ABI set to propose wealth warnings on marketing material
Competitive Context
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- Key points
- Pension substitutes
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- Figure 11: Summary of retirement funding strategies
- Home as pension…
- …but will falling prices affect people’s plans?
- Equity release poses a minor threat to traditional pensions
- A more holistic approach needed
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- Figure 12: Ownership of savings and investment products, by all pension holders, DC pension holders and those who are saving for retirement outside of a pension, June 2008
- Implication and opportunity
- Income drawdown is the main alternative to buying an annuity…
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- Figure 13: Size of the pension annuities market versus the income drawdown market – new business, 2003-07
- Implication and opportunity
- …although more suited to those with large pension pots
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- Figure 14: Average pension annuity versus income drawdown premiums, 2003-07
- Most annuitants fail to exercise their OMO right
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- Figure 15: Proportional distribution of external and internal sales of pension annuity and income drawdown products, 2007
- Implication and opportunity
Strengths and Weaknesses in the Market
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- Opportunity knocks
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- Figure 16: The UK annuity market – a summary of strengths, weaknesses, opportunities and threats, 2008
Who’s Innovating?
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- Key points
- Growth in non-conventional products
- Postcode rating – a controversial or winning formula?
- More provider interest in impaired life sector
- Launch of more flexible products is reviving the market
- AEGON’s ‘Income for Life’ product
- Do variable annuities have the potential to break into the mainstream?
- Phased retirement
- Age 75 rule inhibiting real innovation
Trade Perspective
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- About the respondents
- Providers acknowledge that consumer education is key…
- …but expert guidance would also help
- Getting the message across
- An evolving market
- Scope for greater product flexibility
Market Size and Forecast
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- Key points
- Pension annuity business in-force
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- Figure 17: Pension annuity business in force – payments per annum, 1997-2006
- Implication and opportunity
- Annuity sales are booming
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- Figure 18: New pension annuity business – number of new contracts and the value of new premiums, 2003-07
- A surge in the number of retirees will fuel growth in the annuity market…
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- Figure 19: Forecast of new pension annuity business, 2008-12
- Implication and opportunity
- …and also sales of competitor products
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- Figure 20: Forecast of new income drawdown business, 2008-12
- Implication and opportunity
- Factors incorporated
Segment Performance
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- Key points
- Three in five annuities are worth under £20,000
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- Figure 21: Proportional distribution of annuities sold, by fund size, 2007
- Implication and opportunity
- Sales of higher-value annuities picked up strongly in 2007
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- Figure 22: Number of annuities sold, by size of fund, 2003-07
- Implication and opportunity
- Product breakdown
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- Figure 23: Breakdown of pension annuities sold, by type of product, 2006
- Non-conventional annuities are gradually gaining ground…
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- Figure 24: Breakdown of pension annuitiy sales (volume and value), by main product type, 2007
- Investment-linked annuities are more suitable for those with large funds
- …as enhanced annuities become more popular
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- Figure 25: Number of new enhanced/impaired life annuity contracts and as percentage of total annuties sold, 2003-07
- Implication and opportunity
Market Share
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- Key points
- Provider rankings
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- Figure 26: Top 15 providers in the UK annuity market, by new business (APE), 2007
- Top five responsible for over two thirds of new business in 2007
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- Figure 27: Top five providers’ share of the UK annuity market, by new business (APE), 2007
Companies and Products
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- Key points
- New entrants make their presence felt in the enhanced annuity sector
- Annuity rates vary from provider to provider
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- Figure 28: Pension annuities product comparison – non-smoker, ranked by level monthly income, July 2008
- Smokers benefit from more favourable rates
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- Figure 29: Pension annuities product comparison – smoker, ranked by level monthly income, July 2008
Brand Communication and Promotion
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- Key points
- Annuity advertising up by two thirds in 2007/08
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- Figure 30: Advertising expenditure on annuities, by advertiser, 2006-08
- Implication
- Top advertisers
- The press accounts for the majority of adspend
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- Figure 31: Proportional distribution of advertising expenditure on annuities, by media type, 2006-08
Channels to Market
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- Key points
- Most new annuity business is generated by IFAs…
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- Figure 32: New pension annuity premiums, by sales channel, 2003-07
- …but direct channels are growing their distribution share
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- Figure 33: Proportional distribution of new pension annuity premiums, by sales channel, 2003-07
- Implication and opportunity
The Consumer – Pension Ownership
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- Key points
- About Mintel’s consumer survey
- Half of all non-retired adults have a private pension
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- Figure 34: Ownership of pension products, by type, June 2008
- Implication and opportunity
- Just over half of all pension holders are members of a defined-benefit scheme…
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- Figure 35: Benefit structure of pension held, by pension holders, June 2008
- …but many will be members of closed schemes
- 14 million have a money-purchase pension
- Implications
- Many people have multiple pension pots
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- Figure 36: Ownership of pension products and retirement savings – cross-analysis, June 2008
- Implication and opportunity
- Capture them while they’re young
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- Figure 37: Type of pension owned. by gender, age, socio-economic group, working status and household income, June 2008
- Implications
- ABC1 third agers are a major target group
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- Figure 38: Type of pension owned by marital status, lifestage, Mintel’s Special Groups and tenure, June 2008
- Implication and opportunity
- Little regional variation outside of London
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- Figure 39: Type of pension owned by region and ACORN category, new technology usage, newspaper readership and commercial TV viewing, June 2008
The Consumer – Pension Fund Value
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- Key points
- Half of all pension holders have no idea what their pension fund is worth…
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- Figure 40: Value of pension fund, June 2008
- Implications
- …but the proportion varies depending on the type of pension held
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- Figure 41: Value of pension fund, by type of pension owned, June 2008
- Implication
- Men tend to have much larger pension pots than women
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- Figure 42: Value of pension fund, by gender and age group, June 2008
- Implication and opportunity
- A quarter of ABs have pension funds worth over £50,000
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- Figure 43: Value of pension fund, by socio-economic group, June 2008
The Consumer – Retirement Plans
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- Key points
- Most pension holders plan to stop working at state pension age
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- Figure 44: Age planning to retire, by pension holders and non-pension holders, June 2008
- Personal pension holders are more likely to retire later than occupational scheme members
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- Figure 45: Planned retirement age, by type of pension owned, June 2008
- The luck of the baby boom generation
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- Figure 46: Planned retirement age, by gender and age group (DC pension holders only), June 2008
The Consumer – Targeting Opportunities
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- Key points
- Most DC pension holders have not heard of annuities
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- Figure 47: Awareness, advice needs and attitudes towards annuities, by gender, June 2008
- A significant minority are interested in the alternatives
- Awareness improves with age
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- Figure 48: Awareness, advice needs and attitudes towards annuities, by age group, June 2008
- Awareness of OMO is highest among those with larger pension funds
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- Figure 49: Awareness, advice needs and attitudes towards annuities, by value of pension fund, June 2008
- Personal pension holders are keen to take expert advice…
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- Figure 50: Awareness, advice needs and attitudes towards annuities, by type of pension, June 2008
- …but there is little interest in annuities overall
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- Figure 51: Interest in different annuity products and expected buying activity, by pension type, June 2008
- Implication and opportunity
- The later people retire the less likely they are to take a lump sum
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- Figure 52: Interest in different annuity products and expected buying activity, by age planning to retire, June 2008
- Income drawdown interests those with moderately-sized pension funds
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- Figure 53: Interest in different annuity products and expected buying activity, by pension fund value, June 2008
- Men appear more proactive than women
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- Figure 54: Interest in different annuity products and expected buying activity, by gender and age group, June 2008
- Wealthy ABs are more prone to considering all the options
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- Figure 55: Interest in different annuity products and expected buying activity, by socio-economic group, June 2008
- Further analysis
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