Table of Contents
Introduction
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- Market background and product definitions
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- Figure 1: Overview of the annuity and retirement income market, 2012
- Single and joint life policies
- The Open Market Option
- The ABI Code of Conduct
- Alternative Solutions
- Abbreviations
Executive Summary
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- The market
- Annuity sales are expected to rise
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- Figure 2: Value of new pension annuity business, at current prices – fan chart, 2007-17
- Market factors
- Regulation set to change the way the industry operates
- Changing pension landscape
- Quantitative easing is bad news for annuity rates
- Companies, products and innovations
- Top four providers account for 60% of new business in 2011
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- Figure 3: Top five providers’ share of the UK annuity market, by new business (APE), 2011
- Innovations in the annuity market
- The consumer
- Nearly two-thirds of over 45s have private pension provision
- Savings and investment ownership
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- Figure 4: Savings and investment product ownership – Pension ownership, May 2012
- A third expect to work beyond the state pension age
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- Figure 5: Retirement plans, May 2012
- Understanding of annuities is high among potential annuitants
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- Figure 6: Understanding and awareness of annuities, May 2012
- Nearly two-thirds of potential annuitants have an understanding of the OMO
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- Figure 7: Understanding of the OMO, May 2012
- What we think
Issues in the Market
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- How will the annuity market change as a result of the regulation onslaught?
- The RDR – catastrophic for potential annuitants?
- Will ‘third way’ products gain a foothold in the market?
- Will the North American approach to pensions make its way across the pond?
- Enhanced annuities – can a collaborative approach help to bolster this market?
Trend Application
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- The OMO will foster increased competition in the annuities market
- Life begins at 65
- Pension providers sign up to the ABI Code of Conduct in an attempt to do what’s best for the customer
Internal Market Environment
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- Key points
- Concerns around retirement savings levels
- ABI reforms set to increase pension pots for retirees
- A concerning proportion of firms have no agreed pension reform costs absorption strategy
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- Figure 8: Likely strategies to be used by (large) employers to meet increased costs resulting from the new pension reforms, 2012
- Number of external annuity sales creep up
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- Figure 9: Share of external versus internal new pension annuity sales, 2001-11
- How will quantitative easing affect annuities?
- Gilt rates nose dive as a result of UK’s safe haven status
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- Figure 10: Annual annuity income and gilt rates, January 1990-August 2012
Broader Market Environment
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- Key points
- Increased longevity creates the need for a pensions rethink
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- Figure 11: Cohort life expectancy at age 65, by gender, 1981-2057
- Pressure on state mounts with an increasing number of pensioners
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- Figure 12: Projected size of the UK population, by age band, 2012-56
- Flat base rate makes for meagre returns on savings
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- Figure 13: Average monthly changes in the Bank of England base rate, CPI RPI – UK, October 2007 –March 2012
- Stock market volatility does little to help pension funds
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- Figure 14: FTSE 100 and FTSE All-Share – daily index movements, January 2003-May 2012
- Gilt yields continue to be low and are not helped by QE
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- Figure 15: Historical monthly medium, long and ultra-long gilt yields, January 2002–April 2012
Regulatory Environment
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- Key points
- Regulation is the key influencing factor in the annuity market over the next few years
- The RDR
- Gender equalisation
- Solvency II
- New ABI Code of Conduct
Competitor Products
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- Key points
- Foreign Pension providers may start eating into the UK market
- Annuity and income drawdown volumes decrease
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- Figure 16: New sales of pension annuities versus income drawdown plans, 2006-11
- Annuity premium value creeps up, as drawdown values stutter
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- Figure 17: Average pension annuity versus income drawdown premiums, 2006-11
- Two-thirds of income drawdown sales are external
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- Figure 18: Proportional distribution of external and internal sales of pension annuity and income drawdown products, 2011
SWOT Analysis
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- Figure 19: SWOT Analysis
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Who’s Innovating
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- Key points
- Nationwide annuity service launched
- Fixed-term annuity ‘get out clauses’
- Annuity Exchange launched a shop-around tool
- Prudential releases desktop app for IFAs
- More enhanced annuity products hit the market
Market Size and Forecast
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- Key points
- Deferred retirement takes its toll on annuities
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- Figure 20: New pension annuity business – number of new contracts and the value of new premiums, 2006-2011
- Uncertainty in the pensions industry will keep new annuity business growth levels subdued
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- Figure 21: Value of new pension annuity business, at current prices – fan chart, 2007-17
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- Figure 22: Volume of new pension annuity business – fan chart, 2007-17
- Figure 23: Forecast of new pension annuity business, at current and constant prices, 2007-17
- Overall annuity outlook is cautiously optimistic
- Forecast methodology
Segment Performance
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- Key points
- Small annuity pots account for the largest share of overall sales
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- Figure 24: Proportional distribution of annuities sold, by fund size, 2011
- Mid-sized annuity funds see growth in sales numbers in 2010-11
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- Figure 25: Number of annuities sold, by size of fund, 2007-11
- Enhanced and unit-linked annuity contracts saw huge growth in 2010-11
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- Figure 26: Breakdown of pension annuity sales, by main product type, 2005, 2010-11
- Enhanced annuity market shows notable growth in 2011
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- Figure 27: Number of new enhanced/impaired life annuity contracts and as a percentage of total annuities sold, 2005-11
Market Share
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- Key points
- Aviva retains top market share position
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- Figure 28: Top 15 providers in the UK annuity market, by new APE premiums, 2011
- Top four providers account for 60% of new business in 2011
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- Figure 29: Top five providers’ share of the UK annuity market, by new business (APE), 2011
Companies and Products
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- Aviva
- Company description
- Product range
- Distribution
- Key data
- Recent activity
- Prudential
- Company description
- Product range
- Distribution
- Key data
- Recent activity
- Legal & General
- Company description
- Product range
- Distribution
- Key data
- Recent activity
- Canada Life
- Company description
- Product range
- Distribution
- Key data
- Recent activity
- Just Retirement
- Company description
- Product range
- Distribution
- Key data
- Recent activity
Brand Communication and Promotion
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- Key points
- Annuity advertising spend more than doubles in the last year
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- Figure 30: Above-the-line consumer advertising expenditure on annuities and income drawdown products, 2010-12
- Aviva tops the advertiser charts for annuity adspend
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- Figure 31: Top six advertisers of annuities and income drawdown products, 2010-12
- Internet advertising of annuities continues to increase
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- Figure 32: Advertising expenditure on annuities and income drawdown products, by media type, 2010-12
- Annuity targets are comfortable with technology usage
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- Figure 33: Understanding of annuities, May 2012
- Note about NMR data
Channels to Market
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- Key points
- IFAs account for the bulk of new annuity premium sales
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- Figure 34: New pension annuity premiums, by sales channel, 2007-11
- IFAs also dominate the income drawdown sales channel
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- Figure 35: New pension income drawdown premiums, by sales channel, 2007-11
Savings and Investment Ownership
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- Key points
- Some 13% of over 45s have a DC pension
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- Figure 36: Savings and investment product ownership, May 2012
- Figure 37: Savings and investment product ownership – pensions only, May 2012
- Pension owners not putting all of their eggs in one basket
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- Figure 38: Savings and investment product ownership, by most popular savings and investment product ownership, May 2012
- Men are more likely to hold a pension than women
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- Figure 39: Most popular savings and investment product ownership, May 2012
- Pension ownership higher amongst the better-off
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- Figure 40: Most popular savings and investment product ownership, May 2012
Retirement Plans
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- Key points
- Automatic retirement at the state pension age is an outdated view
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- Figure 41: Retirement plans, May 2012
- People looking to retire before state pension age display high levels of pension ownership
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- Figure 42: Savings and investment product ownership, by retirement plans, May 2012
- Those nearer retirement have a more realistic view of their retirement plans
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- Figure 43: Retirement plans, May 2012
- Self-employed are most likely to expect to work beyond state pension age
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- Figure 44: Retirement plans, May 2012
Understanding of Annuities
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- Key points
- Nearly 70% of over 45s with a DC pension know what an annuity is
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- Figure 45: Understanding and awareness of annuities, May 2012
- Men more likely to have an understanding of annuities
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- Figure 46: Understanding and awareness of annuities, by Gender, May 2012
- Understanding of annuities higher, closer to retirement
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- Figure 47: Understanding of annuities, by Age, May 2012
- Saving and investment product ownership is higher among the annuity-aware
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- Figure 48: Savings and investment product ownership, by understanding of annuities, May 2012
- Only a minority of annuity-prepared DC pension owners expect to retire at state pension age
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- Figure 49: Retirement plans, by understanding of annuities, May 2012
Understanding and Awareness of the Open Market Option
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- Key points
- The open market option has good awareness levels
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- Figure 50: Understanding of the OMO, May 2012
- Awareness and understanding of annuities and OMO go hand-in-hand
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- Figure 51: Understanding and awareness of open market option, by understanding of annuities, May 2012
- OMO-aware are less likely to plan to retire at the state pension age
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- Figure 52: Retirement plans, by understanding of the OMO, May 2012
Appendix – Market Size
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- Figure 53: Value of new pension annuity business, at current prices – fan chart, 2012-17
- Figure 54: Volume of new pension annuity business, at current prices – fan chart, 2012-17
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Appendix – Savings and Investment Ownership
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- Figure 55: Most popular savings and investment product ownership, May 2012
- Figure 56: Next most popular savings and investment product ownership, May 2012
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- Figure 57: Pension product ownership, May 2012
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Appendix – Retirement Plans
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- Figure 58: Retirement plans, May 2012
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Appendix – Understanding of Annuities
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- Figure 59: Understanding of annuities, May 2012
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Appendix – Understanding and Awareness of the Open Market Option
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- Figure 60: Understanding of the OMO, May 2012
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