Annuities and Income Drawdown - UK - August 2018

OVERVIEW
What you need to know
Products covered in this Report
EXECUTIVE SUMMARY
The market
Demand for drawdown has climbed well ahead of annuities
Figure 1: Forecast of new retirement income sales – Fan chart, 2013-23
Small pension pots the most likely to be fully withdrawn
Figure 2: Number of DC pension pots accessed for the first time, split by usage, October 2015-September 2017
Half of annuities sold include a guaranteed period
Higher proportion of annuity sales completed on the open-market
IFA led drawdown sales have tumbled
Modern retirement requires flexible income solutions
FCA proposes standardised income drawdown products
Companies and brands
Lack of competitive pressures in the annuity market
Drawdown market competition more diverse and fragmented
Significant innovation yet to come
The consumer
Pension ownership
Figure 3: Ownership of single and multiple pension pots, June 2018
Half of those aged 55+ have already accessed their pension savings
Figure 4: Proportion of DC pension holders aged 55+ who have accessed pension pot, June 2018
19% anticipate they will access their pension before state retirement age
Figure 5: When DC pension holders expect to access their pension (under-65s only), June 2018
An annuity is a more appealing concept than drawdown for those yet to retire
Figure 6: Decumulation options likely to consider, June 2018
74% find the various retirement income options confusing
Figure 7: Agreement with statements about retirement income options, June 2018
Pension savers will seek advice and guidance but do not want to pay for it
Figure 8: Sources of retirement income advice and guidance, June 2018
What we think
ISSUES AND INSIGHTS
Should access to independent advice be facilitated via the workplace?
The facts
The implications
Market dynamics will eventually turn back in the favour of annuities
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Drawdown sales volumes have blasted ahead of annuities
Lower value pension pots the most likely to be fully withdrawn
Half of all annuity sales are with a guaranteed period
The proportion of IFA led drawdown sales has plummeted
Modern retirement requires a more flexible approach
FCA proposes standardised income drawdown options
MARKET SIZE AND FORECAST
Drawdown sales continue to surge ahead of annuities
Figure 9: Volume of new annuity and income drawdown sales, 2013-17
Drawdown was worth an estimated 83% of the market in 2017
Figure 10: Value of new annuity and income drawdown premiums, 2013-17
Sales volumes expected to be relatively flat in the next five years…
Figure 11: Forecast of new retirement income sales – Fan chart, 2013-23
Figure 12: Forecast of new retirement income sales, 2013-23
…while premiums are projected to reach £32 billion in 2023
Figure 13: Forecast of new retirement income premiums – Fan chart, 2013-23
Figure 14: Forecast of new retirement income premiums, 2013-23
Forecast methodology
PENSION POTS ACCESSED
Over half of pension pots accessed are fully withdrawn
Figure 15: Number of DC pension pots accessed for the first time, by usage, October 2015-September 2017
Full withdrawals primarily executed by those with pots under £30,000
Figure 16: Proportional distribution of customers by pot size and usage, April-September 2017
Desire for flexibility making drawdown more common
Over-65s more likely to buy an annuity
Figure 17: Proportion distribution of customers by age and usage, April-September 2017
£17.5 billion withdrawn from pensions since start of Pension Freedoms
Figure 18: Flexible payments from pensions, Q2 2015-Q1 2018
ANNUITY MARKET SEGMENTATION
Annuities with a guaranteed period account for half all sales
Figure 19: Annuity sales by product type, 2015-17
Number of flexible annuity sales nearly doubles
CHANNELS TO MARKET 
Over half of annuities sold externally while opposite true for drawdown
Figure 20: Breakdown of annuity and income drawdown sales by internal and external, 2014-17
Large majority of annuities sold without advice
Figure 21: Number of new annuity sales, by channel, 2014-17
Drawdown sales via IFAs have dwindled since 2015
Figure 22: Number of new drawdown sales, by channel, 2014-17
Intermediary definitions
MARKET DRIVERS
In-force DC pension scheme numbers move beyond 23 million in 2016
Figure 23: Number of individual and group pensions in force and number of occupational DC members, 2012-16
Thus far 9.7 million workers have been auto-enrolled
Historically low annuity rates increase appeal of income drawdown
Fewer providers offering annuities on the open market
Proportion working beyond state pension age on the rise
REGULATORY AND LEGISLATIVE CHANGES
FCA Retirement Outcomes Review final report
Lack of market competition detrimental to non-advised consumers
Key proposals require providers to bear more responsibility
Providers must inform annuity customers of better deals
Launch of Pension’s Dashboard facing delays
Single Financial Guidance Body receives go-ahead
Pension Advice Allowance has thus far been ineffective
Calls to raise employer-arranged pension advice exemption
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
Lack of competitive pressures in the annuity market
The number of providers selling on the open market falls further
Drawdown market competition more diverse and fragmented
Significant innovation yet to come
KEY PLAYERS AND MARKET MOVERS
There are over 50 retirement income product providers
The leading annuity providers
Recent sales figures
Figure 24: New annuity business, by the largest providers, 2017
The number of open market annuity providers drops again
More companies are competing in the income drawdown market
COMPETITIVE STRATEGIES AND INNOVATION
Major innovations still to come
Launch of more drawdown-focused funds and services expected
Scottish Widows launches Retirement Portfolio Funds for drawdown
Royal London to offer the option to swap guaranteed income for a bonus
Robo-advice set to play a bigger role in retirement income management
THE CONSUMER – WHAT YOU NEED TO KNOW
Most in full-time employment have a pension
Three fifths anticipate accessing pension at state pension age or later
Those yet to retire more likely to consider an annuity than drawdown
Control and flexibility a must but retirement options seen as confusing
Only 27% would consult with an IFA about retirement income plans
PENSION OWNERSHIP AND ACCESS
Most full-time employees have a pension
Many savers hold multiple pension pots
Figure 25: Ownership of single and multiple pension pots, June 2018
DB schemes remain more prevalent than DC schemes
Figure 26: Type of pension owned, by number of pension pots, June 2018
Multiple pension ownership common among DC pension holders
Figure 27: Proportion of pension savers with a single pot versus two or more pots, by type of pension, June 2018
Half of those aged 55+ have accessed their pension savings
Figure 28: Proportion of DC pension holders aged 55+ who have accessed pension pot, June 2018
AGE EXPECTING TO ACCESS PENSION
Most expect to access pensions at, or after, state pension age
Figure 29: When DC pension holders expect to access their pension (under-65s only), June 2018
Delaying access a sensible option if available
Temptation to access pension pots rises as state retirement age nears
Figure 30: When DC pension holders expect to access their pension (under-65s only), by age, June 2018
Personal and financial well-being key in determining timing
DECUMULATION OPTIONS LIKELY TO CONSIDER
Annuities are favoured over drawdown…
Figure 31: Decumulation options likely to consider, June 2018
…but a partial cash withdrawal the most common option considered
Multipronged approach also a possibility
ATTITUDES AND EXPECTATIONS ABOUT RETIREMENT INCOME
Retirement income control and flexibility in high demand…
Figure 32: Agreement with statements about retirement income options, June 2018
…but retirement income options are widely viewed as confusing
SOURCES OF RETIREMENT INCOME ADVICE AND GUIDANCE
Pension savers interested in advice and guidance but not paying for it
Figure 33: Sources of retirement income advice and guidance, June 2018
Employers are well placed to link savers with advisers
APPENDIX – DATA SOURCES AND ABBREVIATIONS
Consumer research methodology
Abbreviations
APPENDIX – MARKET SIZE AND FORECAST
Total market forecasts – best- and worst-case scenarios
Figure 34: Forecast of new retirement income sales – Best- and worst-case scenarios, 2018-23
Figure 35: Forecast of new retirement income premiums – best- and worst-case scenarios, 2018-23
Forecast methodology