Table of Contents
Issues in the Market
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- Key issues
- Abbreviations
Future Opportunities
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- Improving engagement by focusing on individual needs
- Looking on the bright side of the ‘new reality’
Market in Brief
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- New contracts rise slightly as new premiums fall by more than 6%
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- Figure 1: New pension annuity business – number of new contracts and the value of new premiums, 2005-09
- 10% of total annuities sold are enhanced annuities
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- Figure 2: Number of new enhanced/impaired life annuity contracts and as percentage of total annuities sold, 2005-09
- Economic and demographic pressures altering the market
- Pension ownership on the decline but could be boosted by NEST
- New government frees up annuity regulatory environment
- Open market option not living up to its potential
- IFAs still generate the majority of new business
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- Figure 3: Proportional distribution of the value of new pension annuity premiums, by sales channel*, 2005-09
- Market share – Prudential stays on top
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- Figure 4: Top five providers’ share of the UK annuity market, by new business (APE), 2009
- Brand communication and promotion
- Competitive context
- Key consumer research findings
- Pension ownership and retirement income
- Retirement plans and expectations
- Attitudes and behaviour towards retirement income
- What people are looking for in an annuity
Internal Market Environment
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- Key points
- Falling occupational scheme numbers
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- Figure 5: Size of the defined-contribution pension pool, 1998-2008
- Consumer unawareness and apathy is prevalent
- NEST should benefit the annuity market in the long term…
- …but questions have arisen over its launch as NEST is put under review
- Downward trend in annuity rates likely to continue
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- Figure 6: Annual annuity rates and gilt rates, January 1990-June 2010
- Shopping around now more important…
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- Figure 7: External versus internal volume sales of new pension annuities – proportional distribution, 2000-09
- …but those with low-value pensions less likely to shop around
- PICA calls for mandatory shopping around
- Key legislative developments
- Emergency budget loosens up regulatory environment
- Mandatory annuitisation to be abolished from April 2011
- Tax payable on pension savings upon death will be set to 55%
- Increased flexibility for consumers – should be good for providers
- Default retirement age to be scrapped
- State pension age set to rise
- The RDR could lead to more direct sales
- Advisory bureaux could help those who can’t afford advice
- Some advisers looking at ways to profitably service lower-value clients
- EU Solvency II directive
Broader Market Environment
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- Key points
- Increasing longevity is costly for annuity providers…
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- Figure 8: Cohort life expectancy at age 60, by gender, 1981-2056
- …but has led to some innovation in pricing strategy
- Demand for annuities should rise as population ages
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- Figure 9: Projected size of the UK population, by age band, 2008-58
- Decline in pension fund values hurts demand for annuities
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- Figure 10: FTSE 100 and FTSE All Share – daily index movements, June 2004-June 2010
- The impact of inflation is variable
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- Figure 11: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, June 2007-June 2010
- Gilt yields continue to fluctuate
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- Figure 12: Historical monthly medium, long and ultra-long gilt yields, January 2001-June 2010
- Earnings making up a growing proportion of pensioner income
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- Figure 13: Breakdown in gross pensioner income (weekly average at 2008/09 prices), 1996/97-2008/09
Competitive Context
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- Key points
- Income drawdown – the only true alternative to annuitisation
- Alternative/supplemental retirement income strategies
- ISAs
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- Figure 14: ISA sales, by type of ISA, 2003/04-2008/09
- Property – Buy-to-let
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- Figure 15: New buy-to-let mortgage business, 2003-09
- Equity release
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- Figure 16: Total value of equity release sales by SHIP members, 1999-2010
Swot
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- Figure 17: UK annuity market, SWOT analysis, 2010
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Who’s Innovating?
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- Key points
- AXA Wealth piloting range of new variable annuities
- The MGM Advantage ‘Flexible Income’ asset-backed annuity
- The annuity growth account from Canada Life
- Assureweb continues to expand its capabilities
- Aviva introduces ‘consumer specific’ online retirement income calculator
- CFS launches commissionfreeannuities.com
- Catering to the small pension pot owners
- Tenet launches non-advised annuity outsourcing desk
- Annuity Clearing House launches outsourcing service
- Capita Hartshead joins Partnership to expand access to enhanced annuities
- Age UK to offer annuities service for those small pension funds
Market Size and Forecast
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- Key points
- New contracts up slightly while new premiums down by more than 6%
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- Figure 18: New pension annuity business – number of new contracts and the value of new premiums, 2005-09
- Annual pension annuity payments continue to rise
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- Figure 19: Pension annuity business in force – payments per annum, 1998-2008
- More than 40% of annuities are bought with less than £10,000
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- Figure 20: Proportional distribution of annuities sold, by fund size, 2009*
- Forecast
- New business volumes will continue to rise ahead of values
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- Figure 21: Forecast of new pension annuity business – number of new contracts and the value of new premiums, 2005-15
- Factors used in this forecast
Market Segment Performance
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- Key points
- The continued migration away from conventional annuities
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- Figure 22: Breakdown of pension annuity sales (volume and value), by main product type, 2009 and 2005
- Enhanced annuities now account for nearly 10% of total annuities sold
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- Figure 23: Number of new enhanced/impaired life annuity contracts and as percentage of total annuities sold, 2005-09
Income Drawdown Overview
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- Key points
- The annuity alternative
- New income drawdown volumes rise as the value of new business falls
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- Figure 24: Income drawdown new business*, 2005-09
- Average income drawdown fund falls to £75,000
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- Figure 25: Average pension annuity versus income drawdown premiums, 2005-09
- IFAs continue to be primary drivers of new business
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- Figure 26: New income drawdown premiums, by sales channel, 2005-09
Market Share
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- Key points
- Prudential continues to be the market leader
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- Figure 27: Top five providers’ share of the UK individual annuity market, by new business (APE), 2009
- Top five keep their places despite a down year
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- Figure 28: Top 15 providers in the UK individual annuity market, by new business (APE), 2009
Companies and Products
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- Major players
- Prudential
- Aviva
- AEGON Scottish Equitable
- Legal & General
- Canada Life
Brand Communication and Promotion
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- Key points
- Annuity-related adspend down by half in the year to May 2010
- LV Group top advertiser of annuity products
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- Figure 29: Adspend, by company in the annuities category in the UK, 2008-10
- The balance shifts to direct mail advertising in 2010
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- Figure 30: Overview of media type used to advertise annuities*, 2008-10**
Channels to Market
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- Key points
- Three main channels of distribution
- More new business going direct but IFAs are holding their ground
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- Figure 31: Proportional distribution of the value of new pension annuity premiums, by sales channel*, 2005-09
- Technology has also contributed to the rise in direct sales
The Consumer – Pension Ownership and Retirement Income
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- Key points
- Pension ownership
- Just over a third of non-retired adults own a pension
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- Figure 32: Savings and investment products owned, June 2010
- Over half of those with a pension have a DC scheme
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- Figure 33: Proportion of pension holders with a DB scheme vs. any type of DC scheme, June 2010
- Below-average pension ownership for under-35s
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- Figure 34: Pension product ownership, by gender and age, June 2010
- Social status and income levels key indicators of pension ownership
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- Figure 35: Pension product ownership, by socio-economic group, June 2010
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- Figure 36: Pension product ownership, by gross annual household income, June 2010
- Retirement Income
- Retirement strategy and ownership of income-producing assets
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- Figure 37: Cross-analysis of select financial products owned, June 2010
- Demographics: Competing for the same consumer
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- Figure 38: Potential retirement strategies (product ownership), by gender, age, socio-economic group, lifestage, marital status and gross annual household income, June 2010
The Consumer – Retirement Plans and Expectations
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- Key points
- Confidence in retirement savings
- Only a minority absolutely certain of a comfortable retirement
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- Figure 39: Confidence that personal savings will provide a comfortable retirement, June 2010
- More will work past retirement age or rely on home equity for income
- Confidence in retirement savings by product ownership
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- Figure 40: Confidence that personal savings will provide a comfortable retirement, by ownership of select saving and investment products, June 2010
- Lack of confidence among people nearing retirement age
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- Figure 41: Confidence that personal savings will provide a comfortable retirement, by gender, age, lifestage, marital status and region, June 2010
- Outright homeowners and the affluent most upbeat about their prospects
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- Figure 42: Confidence that personal savings will provide a comfortable retirement, by socio-economic group, working status, household income and tenure, June 2010
- Broadsheet readers and those banking online most confident
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- Figure 43: Confidence that personal savings will provide a comfortable retirement, by media usage, June 2010
- Years until retirement
- Just under a third with a pension plan to retire within the next ten years
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- Figure 44: Years until retirement or the scaling back of working hours, June 2010
- Potential annuitants more confident than most
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- Figure 45: Confidence that personal savings will provide a comfortable retirement, by years until retirement or the scaling back of working hours, June 2010
- More than a quarter retiring in five years or less have a DC scheme
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- Figure 46: Years until retirement or the scaling back of working hours, by ownership of select saving and investment products, June 2010
- Years to retirement and age – Phased approach gaining momentum
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- Figure 47: Years until retirement or the scaling back of working hours, by age, June 2010
The Consumer – Attitudes and Behaviour towards Retirement Income
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- Key points
- A quarter of DC pension owners unacquainted with annuities
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- Figure 48: Attitudes and behaviour towards annuities/retirement income, June 2010
- More frequent communication with pension savers needed
- Over a third say they are aware of the OMO
- Scope to get more women interested in annuities
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- Figure 49: Attitudes and behaviour towards annuities/retirement income, by gender and age, June 2010
- Engaging people at a younger age will help them to manage expectations
- Well off most aware of the OMO
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- Figure 50: Attitudes and behaviour towards annuities/retirement income, by socio-economic group and gross annual household income, June 2010
The Consumer – What People Are Looking For in an Annuity
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- Key points
- Link to inflation top desired feature
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- Figure 51: What people with a DC pension are looking for in an annuity, June 2010
- Flexibility and retirement income security for partner also top factors
- Desired features better defined the closer one is to retirement
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- Figure 52: What people with a DC pension are looking for in an annuity, by gender and age, June 2010
- Well off more likely to be interested flexibility and guarantees
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- Figure 53: What people with a DC pension are looking for in an annuity, by socio-economic group and gross annual household income, June 2010
Appendix – Broader Market Environment
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- Figure 54: Trends in the age structure of the UK population, by gender, 2004-14
- Figure 55: Average gross weekly income of pensioner units*, by age, 2008/09
- Figure 56: UK economic activity among people of pension age, by gender, 2002-08
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Appendix – Market Size and Forecast
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- Figure 57: Number of annuities sold, by size of fund, 2005-09
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Appendix – Brand Communication and Promotion
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- Figure 58: Adspend in the annuities category in the UK, by media type, 2008-10
- Figure 59: Adspend by companies in the annuities category in the UK, by media type, 2010
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Appendix – Channels to Market
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- Figure 60: New pension annuity premiums, by sales channel, 2005-09
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Appendix – The Consumer – Pension Ownership and Retirement Income
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- Figure 61: Ownership of select saving and investment products, by demographics, June 2010
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Appendix – The Consumer – Retirement Plans and Expectations
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- Figure 62: Confidence that personal savings will provide a comfortable retirement, June 2010
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- Figure 63: Years until retirement/scaling back working hours, June 2010
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- Figure 64: Confidence that personal savings will provide a comfortable retirement, by demographics, June 2010
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- Figure 65: Years till retirement/scaling back working hours, by demographics, June 2010
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Appendix – The Consumer – Attitudes and Behaviour towards Retirement Income
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- Figure 66: Attitudes and behaviour towards annuities/retirement income, by demographics, June 2010
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Appendix – The Consumer – What People Are Looking For in an Annuity
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- Figure 67: What people with a DC pension are looking for in an annuity, by demographics, June 2010
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