Table of Contents
Issues in the Market
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- Key issues in the market
- Abbreviations
Future Opportunities
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- Breaking down advice barriers
- An issue of trust
- More choice and flexibility – but beware too much complexity
- Creating more realism about retirement expectations
Market in Brief
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- Annuity sales continue on an upward trend
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- Figure 1: New pension annuity business – number of new contracts and the value of new premiums, 2003-09
- Conventional annuities are beginning to lose ground
- Market drivers should ensure growth over the long term
- Economic downturn leads to increased uncertainty in annuity market
- Prudential remains the leading annuity provider
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- Figure 2: Top five providers’ share of the UK annuity market, by new business (APE), 2008
- Small pension pots drive product and distribution developments
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- Figure 3: Proportional distribution of annuities sold, by fund size, 2008
- Direct annuity sales set to grow
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- Figure 4: Proportional distribution of new pension annuity premiums, by sales channel, 2004-08
- Key consumer findings
- Pension product ownership
- Retirement plans and expectations
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- Figure 5: When planning to retire, June 2009
- Attitudes towards annuities
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- Figure 6: Attitudes towards annuities/retirement income, June 2009
Internal Market Environment
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- Key points
- Individual pension policies increase…
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- Figure 7: Size of the defined-contribution pension pool, 1997, 2002 and 2007
- … but membership of DC schemes is shrinking
- A large proportion of consumers remain disengaged with pensions
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- Figure 8: Attitudes towards pension based-savings, January 2009
- Personal accounts will boost the market over the long-term
- Uncertainty over annuity rates
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- Figure 9: Annual annuity rates and gilt rates, January 1990-June 2009
- OMO continues to create headlines
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- Figure 10: External versus internal volume sales of new pension annuities – proportional distribution, 2000-08
- Industry take positive action to develop the OMO
- Regulatory and legislative developments
- RDR
- FSA comparative tables
Broader Market Environment
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- Key points
- Ageing population boosts annuity market
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- Figure 11: UK adult population data and dependency ratios, 2009-56
- Increased life expectancy propels ageing population…
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- Figure 12: Cohort life expectancy at age 65, by gender, 1985-2055
- … and drives innovation in the annuities market
- Pensioner income data reveal change in approach to retirement
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- Figure 13: Breakdown in gross pensioner income (weekly average at constant prices, 2007-08), 1994-95-2007-08
- Inflationary trends – good and bad news for annuitants
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- Figure 14: Average annual changes in the Bank of England base rate, CPI and RPI – UK, 2000-09
- Share prices experiences a turbulent year
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- Figure 15: FTSE 100 and FTSE All Share indices – daily index movements, June 2000-May 2009
- Gilt yields fluctuate due to economic policy
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- Figure 16: Historical monthly medium, long and ultra long gilt yields, January 2000-March 2009
Competitive Context
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- Key points
- Annuities protected by legislation…
- … but a significant number have alternative retirement strategies
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- Figure 17: Overview of potential retirment income solutions, June 2009
- Equity release provides a different approach to retirement income…
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- Figure 18: Total value of equity release sales by SHIP members, 1991-2009
- …but is it losing its appeal?
Strengths and Weaknesses in the Market
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- Figure 19: UK annuity market, SWOT analysis, 2009
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Who’s Innovating?
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- Key points
- Annuity innovation has been buoyant in recent years
- Annuity Plus bridges the gap between standard and enhanced annuities
- Prudential launches Income Choice Annuity
- Developments in direct sales…
- … and innovation in the IFA market
- Annuity portals and e-enablement to improve IFA margins
Trade Perspective
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- Participating companies
- Annuity market faces a variety of challenges
- Deferred retirements, falling pension pots and increased volatility
- Changing consumer needs will dictate future innovation…
- … and there will be further developments in annuity pricing
- The internet is having an impact, but IFAs remain the key channel of distribution
- Mixed views over industry action to increase the uptake of the OMO
- Personal accounts will have limited impact for the short-to-medium term
Market Size and Forecast
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- Key points
- Annuity sales continue to rise
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- Figure 20: New pension annuity business – number of new contracts and the value of new premiums, 2003-09
- Annuity payments increase as market expands
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- Figure 21: Pension annuity business in force – payments per annum, 1997-2008
- Pension annuity market forecast
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- Figure 22: New pension annuity business – number of new contracts and the value of new premiums, 2003-14
- Almost 40% of annuities sold are for less than £10,000
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- Figure 23: Proportional distribution of annuities sold, by fund size, 2008
- Larger pension funds increase since A-day
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- Figure 24: Number of annuities sold, by size of fund, 2004-08
- Factors used in this forecast
Market Segment Performance
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- Key points
- Annuity market is shifting away from conventional annuities
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- Figure 25: Breakdown of pension annuitiy sales (volume and value), by main product type, 2008 and 2004
- Enhanced annuity sales continue to increase
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- Figure 26: Number of new enhanced/impaired life annuity contracts and as percentage of total annuties sold, 2003-08
- Enhanced annuities – becoming a mainstream product?
- Third-way sales reach £1 billion in 2008…
- … but market turbulence hits variable annuity sector
Income Drawdown Overview
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- Key points
- Sidestepping the annuity
- Income drawdown sales decline in 2008
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- Figure 27: Income drawdown new business, 2004-08
- Average income drawdown fund size falls
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- Figure 28: Average pension annuity versus income drawdown premiums, 2004-08
- IFAs likely to be scrutinised as income drawdown funds decline
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- Figure 29: New income drawdown premiums, by sales channel, 2004-08
Market Share
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- Key points
- Prudential holds 21% of the UK annuity market
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- Figure 30: Top five providers’ share of the UK annuity market, by new business (APE), 2008
- Some movement within top 15 rankings
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- Figure 31: Top 15 providers in the UK annuity market, by new business (APE), 2008
Companies and Products
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- Major players
- Prudential
- Aviva
- AEGON
- Legal & General
Brand Communication and Promotion
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- Key points
- Annuity adspend declines by 40% in 2008
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- Figure 32: Total adspend on annuities and income drawdown, 2006-08
- Intermediary annuity adspend grows strongly
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- Figure 33: Overview of annuity adspend, 2006-08
- Enhanced annuity provider tops advertisers in 2008
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- Figure 34: Top annuity adverstiers, 2006-08
- Press advertising dominates
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- Figure 35: Adspend by media type, 2006-08
Channels to Market
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- Key points
- Direct sales increase…
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- Figure 36: Proportional distribution of new pension annuity premiums, by sales channel, 2004-08
- …although IFAs continue to dominate annuity sales
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- Figure 37: New pension annuity premiums, by sales channel, 2004-08
- IFA community faces challenges
The Consumer – Pension Ownership
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- Key points
- Pension savings gap is clear
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- Figure 38: Financial products owned, June 2009
- Balance shifting in the pension market
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- Figure 39: Proportion of pension holders with a DB scheme, DC scheme or unknown scheme, June 2009
- Major gap in pension savings among the under 35s
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- Figure 40: Pension product ownership, by age group, June 2009
- Pension ownership closely aligned to affluence
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- Figure 41: Pension product ownership, by socio-economic group and gross annual household income, June 2009
- Groups for consumer analysis
- Annuity targets more likely to be third age, AB and male
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- Figure 42: Potential retirement strategies (product owership), by demographics, June 2009
- Many annuity targets have additional sources of retirement income
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- Figure 43: Cross analysis of financial products owned, June 2009
The Consumer – Retirement Plans and Expectations
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- Key points
- Most people expect to retire at state pension age
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- Figure 44: When planning to retire, June 2009
- Retirement reality kicks in after people reach 55
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- Figure 45: When planning to retire, by demographics June 2009
- Some 23% of annuity targets expect to retire before state pension age
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- Figure 46: When planned to retire, by financial products owned, June 2009
- Mixed expectations of standard of living during retirement
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- Figure 47: Financial expectations at retirement, June 2009
- Retirement expectations alter with age
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- Figure 48: Financial expectations at retirement, by demographics, June 2009
- A quarter of annuity targets expect a comfortable retirement
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- Figure 49: Financial expectations at retirement, by financial products owned. June 2009
- Retirement plans and expectations are generally aligned
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- Figure 50: When planned to retire, by financial expectations at retirement, June 2009
The Consumer – Attitudes towards Annuities
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- Key points
- Half of all non-retirees don’t understand what an annuity is
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- Figure 51: Attitudes towards annuities/retirement income, June 2009
- Understanding increases with age
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- Figure 52: Attitudes towards annuities/retirement income, by demographics, June 2009
- Internet is having a impact on confidence regarding annuities
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- Figure 53: Attitudes towards annuities/retirement income, by demographics, June 2009
- Attitudes toward annuities varies among holders of different pension products
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- Figure 54: Attitudes towards retirement and retirement planning, by financial products owned, June 2009
- People planning a phased retirement are the most aware of annuities
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- Figure 55: Attitudes towards annuities/retirement income, by when planned to retire, June 2009
- Income for partner and flexibility are most popular features
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- Figure 56: Annuities features most interested in, June 2009
- Different features appeal to personal and occupational pension holders
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- Figure 57: Annuities features most interested in, by financial products owned, June 2009
- Retirement plans impact preferred features and benefits
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- Figure 58: Annuities features most interested in, by when planned to retire, June 2009
- Target group analysis
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- Figure 59: Overview of annuity target groups, June 2008
- Annuity aware
- Annuity unaware
- Annuity ambivalent
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- Figure 60: Attitudes towards annuities/retirement income, by target groups, June 2009
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- Figure 61: When planned to retire, by target groups, June 2009
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- Figure 62: Annuities features most interested in, by target groups, June 2009
Appendix – Product Background and Definitions
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- Common product types
- Single or joint life
- Cash lump sum
- Open market option
- Alternatives
- Pensions simplification and income drawdown
- Alternatively secured pensions
- Pension products
Appendix – Internal Market Environment
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- Retail Distribution Review
- Splitting sales and advice
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- Figure 63: Proposed regulatory landscape, 2012
- From commission to fees
- Possible extension to non-investment markets
Appendix – The Consumer – Product Ownership
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- Figure 64: Potential retirement strategies (product owership), by demographics, June 2009
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Appendix – The Consumer – Retirement Plans and Expectations
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- Figure 65: When planned to retire, by demographics, June 2009
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- Figure 66: Financial expectations at retirement, by demographics, June 2009
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- Figure 67: Financial expectations at retirement (continued), by demographics, June 2009
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Appendix – The Consumer – Attitudes Towards Annuities
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- Figure 68: Attitudes towards annuities/retirement income, by demographics, June 2009
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- Figure 69: Annuities features most interested in, by demographics, June 2009
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- Figure 70: Target groups, by demographics, June 2009
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