Table of Contents
Introduction
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- Report scope
- Abbreviations
Executive Summary
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- The market
- New annuity premiums increased by 25% in 2012
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- Figure 1: Value of new pension annuity business, at current prices, 2008-18
- Intermediaries play an important role in the annuity market
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- Figure 2: New pension annuity premiums, by sales channel, 2007-12
- Market factors
- Increased longevity requires changes in attitudes towards retirement
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- Figure 3: Expectations of life at 65, 1981-2058
- Increase in pension age population projected over next 40 years
- Living for longer means working for longer for many
- Around 4 million over-45s are potential annuitants
- Annuity rates remain low but show some signs of improvement
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- Figure 4: Annuity rates and gilt yields, January 1991-July 2013
- QE sees has negatively impacted pension pay-outs…
- … which has increased interest in enhanced annuities
- Stockmarket improvements could peak interest in investment-linked annuities
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- Figure 5: FTSE 100 and FTSE All Share – monthly index movements, January 2004-June 2013
- Auto-enrolment is set to have a long-term impact on annuities
- The impact of regulation continues to shape the annuity market
- Income drawdown market is dwarfed by the annuity market
- Companies, products and innovations
- The annuity market is dominated by 5 big players
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- Figure 6: Top 5 providers in the UK annuity market, by new APE premiums, 2012
- Flexibility introduced to Just Retirement’s fixed-term annuity
- Tesco looks to test the waters in the booming annuity market
- Not-for-profit service launched to help advisers work with the OMO
- The consumer
- Just over a quarter of over-45s are potential annuitants
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- Figure 7: Savings and Investment Ownership, June 2013
- Some 53% of over-45s will use a personal pension to fund their retirement
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- Figure 8: Retirement funding plans, June 2013
- IFAs and financial planners will continue to play an important role in annuity selection
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- Figure 9: Annuity research preferences, June 2013
- Flexibility in retirement income ranks high for nearly a third of non-retired over-45s
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- Figure 10: Attitudes towards annuities, June 2013
- What we think
Issues in the Market
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- Is more education needed on the different types of annuity?
- Will we see more over-65s working to fund their retirement?
- Do non-traditional retirement funding plans pose a risk to the annuity market?
- To what extent are people realistic about their retirement income expectations?
- What role does the adviser have to play in the annuity market going forward?
Trend Application
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- Working past 65 is good for the health and the pocket
- Expertise is in demand in the annuity market
- Taking care of the elderly could be mutually beneficial
Market Drivers
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- Key points
- Increased longevity places pressure on annuities
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- Figure 11: Expectations of life at 65, 1981-2058
- A 30% increase in the number of people turning 65 in 2012
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- Figure 12: Projected size of the UK population, by age band, 2012-56
- Just over a quarter of non-retired over-45s hold a DC pension
- Increase in the number of over-65s working
- Annuity rates show some signs of improvement
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- Figure 13: Annuity rates and gilt yields, January 1991-July 2013
- Stockmarket improvements boost interest in investment-linked annuities
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- Figure 14: FTSE 100 and FTSE All Share – monthly index movements, January 2004-June 2013
- Auto-enrolment is set to have a long-term impact on annuities
Regulatory Environment
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- Key points
- ABI Code of Conduct designed to build consumer confidence
- External annuity sales continue to increase
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- Figure 15: Share of external versus internal new pension annuity sales, 2001-12
- Gender Directive set to mean that women receive higher annuity rates
- Solvency II impact expected to be limited
- RDR could reduce number of advised sales
- FCA looks to investigate annuity market
Income Drawdown Overview
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- Key points
- Income drawdown market is dwarfed by the annuity market
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- Figure 16: New sales of pension annuities versus income drawdown plans, 2007-12
- External sales dominate in the drawdown market
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- Figure 17: Proportional distribution of external and internal sales of pension annuity and income drawdown products, 2012
- IFAs are even more dominant in the income drawdown market
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- Figure 18: New pension income drawdown premiums, by sales channel, 2008-12
SWOT Analysis
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- Figure 19: SWOT Analysis for the annuities market, August 2013
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Who’s Innovating?
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- Key points
- Just Retirement introduces flexibility to its fixed-term annuity product
- Tesco launches annuity comparison service
- Annuity quotation portal launched by iPipeline
- Wrap platform Nucleus launches annuity portal
- Annuity lead generation tool launched
Market Size and Forecast
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- Key points
- Annuity business strengthens in 2012
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- Figure 20: New pension annuity business – number of new contracts and the value of new premiums, 2007-12
- The value of new annuity business is set to continue to rise
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- Figure 21: Value of new pension annuity business, at current prices, 2008-18
- Figure 22: Value of new pension annuity business, at current prices, 2008-18
- The number of new annuity contracts is also expected to grow
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- Figure 23: Volume of new pension annuity business, 2008-18
- Figure 24: Volume of new pension annuity business, 2008-18
- Forecast methodology
Segment Performance
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- Key points
- Small pension pots account for the bulk of annuity sales
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- Figure 25: Proportional distribution of annuities sold, by fund size, 2012
- Mid-sized fund growth continues to prevail
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- Figure 26: Number of annuities sold, by size of fund, 2007-12
- Investment and enhanced annuities grow in popularity
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- Figure 27: Breakdown of pension annuity sales, by main product type, 2010-12
- Enhanced annuities sales reach record levels in 2012
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- Figure 28: Number of new enhanced/impaired life annuity contracts and as a percentage of total annuities sold, 2009-12
Market Share
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- Key points
- Aviva remains the top annuity provider by new APE premiums
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- Figure 29: Top 15 providers in the UK annuity market, by new APE premiums, 2011-12
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
- Partnership Assurance (Cinven Ltd)
- Company description
- Product range
- Distribution
- Key data
- Recent activity
- Just Retirement (Avallux Sarl)
- Company description
- Product range
- Distribution
- Key data
- Recent activity
Brand Communication and Promotion
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- Key points
- An active annuity market isn’t reflected in falling adspend
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- Figure 30: Above-the-line consumer advertising expenditure on annuities and income drawdown products, 2011-13
- Aviva is the top advertiser of annuity and income drawdown products
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- Figure 31: Top six advertisers of annuities and income drawdown products, 2011-13
- Large increase in press adspend as providers push the OMO message
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- Figure 32: Advertising expenditure on annuities and income drawdown products, by media type, 2011-13
- A note on adspend
Channels to Market
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- Key points
- Non-advised annuity sales account for 62% of new contracts in Q1 2013
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- Figure 33: Volume and value of annuity sales using new ABI reporting format, Q1 2013
- New annuity premium distribution dominated by IFAs
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- Figure 34: New pension annuity premiums, by sales channel, 2007-12
- Advisers expected to retain role in Post-RDR market
- Distribution of income drawdown
Savings and Investment Ownership
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- Key points
- Just over a quarter of those aged 45+ are potential annuitants
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- Figure 35: Savings and Investment Ownership, June 2013
- Potential annuitants more likely to be financially savvy
- DC pension holders spread their risk amongst other savings products
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- Figure 36: Savings and investment ownership, by most popular savings and investment ownership, June 2013
Retirement Funding Plans
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- Key points
- Over-45s are expecting their pensions to support them through retirement
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- Figure 37: Retirement funding plans, June 2013
- 8% expect to use equity in home to boost retirement finances
- Consumers with one type of retirement funding plan are set to rely on state pension
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- Figure 38: Repertoire of retirement funding plans, June 2013
- Multiple retirement funding strategies reduce the dependency on annuity income
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- Figure 39: Savings and investment ownership, by repertoire of retirement funding plans, June 2013
- Employment in retirement is a preferred choice for some
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- Figure 40: Savings and investment ownership, by selected retirement funding plans, June 2013
- Older people more likely to fund retirement through some form of work
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- Figure 41: Plans to fund retirement through some form of employment, by age
Annuity Research Options
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- Key points
- Professional advice proves popular for potential annuitants
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- Figure 42: Annuity research preferences, June 2013
- Only a minority expect that they will not research annuity options
- Women are less likely to seek professional annuity advice
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- Figure 43: Annuity research preferences, by gender, June 2013
Attitudes Towards Annuities
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- Key points
- Flexibility is key for those looking for a retirement income
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- Figure 44: Attitudes towards annuities, June 2013
- Lack of awareness over enhanced annuity products
- Advice seekers and online researchers looking for flexible products
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- Figure 45: Attitudes towards annuities, by annuity research preferences, June 2013
Appendix – Market Size
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- Figure 46: Value of new pension annuity business, 2013-18
- Figure 47: Volume of new pension annuity business, 2013-18
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Appendix – Savings and Investment Ownership
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- Figure 48: Most popular savings and investment ownership, by demographics, June 2013
- Figure 49: Next most popular savings and investment ownership, by demographics, June 2013
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- Figure 50: Other savings and investment ownership, by demographics, June 2013
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Appendix – Retirement Funding Plans
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- Figure 51: Most popular retirement funding plans, by demographics, June 2013
- Figure 52: Next most popular retirement funding plans, by demographics, June 2013
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- Figure 53: Repertoire of retirement funding plans, by demographics, June 2013
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Appendix – Annuity Research Options
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- Figure 54: Annuity research preferences, by demographics, June 2013
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Appendix – Attitudes Towards Annuities
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- Figure 55: Attitudes towards annuities, by demographics, June 2013
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Appendix – Market Background and Product Definitions
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- Figure 56: 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
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