Annuities and Income Drawdown - UK - August 2019

OVERVIEW
What you need to know
Products covered in this Report
EXECUTIVE SUMMARY
The market
Drawdown sales continue to significantly outpace annuities
Figure 1: Forecast of new retirement income sales – fan chart, 2014-24
Half of pension pots accessed are fully withdrawn
Figure 2: Number of DC pension pots accessed for the first time, by usage, April 2016-March 2018
Enhanced annuities account for two fifths of new annuity sales
Auto-enrolment has expanded the target market
New FCA rules will start to be implemented from autumn 2019
Companies and brands
Lack of competition in the annuity market
More firms competing in the drawdown market
The consumer
Two thirds now have a pension
Figure 3: Ownership of single and multiple pension pots, June 2019
Half of over-55s have already accessed their pension savings
Figure 4: Proportion of DC pension holders aged 55+ who have accessed pension pot, June 2019
One in five expect to access pension savings before state pension age
Figure 5: When DC pension holders expect to access their pension (under-65s only), June 2019
Those yet to retire more drawn to concept of an annuity than drawdown
Figure 6: Decumulation options likely to consider, June 2019
At least half are unprepared about how pension pot will be used in retirement
Figure 7: Level of planning about use of pension savings in retirement, June 2019
More than half claim to be very or somewhat confident about managing pension
Figure 8: Level of confidence about making decision about pension savings, June 2019
Uncertainty is the key driver of pension concerns
Figure 9: Concerns about the use of pension pot, June 2019
Control and flexibility are vital but doubts about engagement remain
Figure 10: Agreement with statements about pensions and retirement income, June 2019
What we think
ISSUES AND INSIGHTS
Pension Freedoms went too far too quickly
The facts
The implications
Most have given up on professional advice just when they need it most
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Drawdown sales continue to eclipse annuities
Half of pension pots accessed are fully withdrawn
Enhanced annuities now account for two in five new annuity sales
Half of annuities are sold on the open market
Auto-enrolment has helped to expand the addressable market
New FCA rules will come into force in autumn 2019
MARKET SIZE AND FORECAST
Drawdown sales continue their impressive growth
Figure 11: Volume of new annuity and income drawdown sales, 2014-18
Drawdown estimated to make up 84% of the market by value
Figure 12: Value of new annuity and income drawdown premiums, 2014-18
Retirement income product sales set to continue rising
Figure 13: Forecast of new retirement income sales – fan chart, 2014-24
Figure 14: Forecast of new retirement income sales – fan chart, 2014-24
New premiums forecast to reach £43 billion in 2024
Figure 15: Forecast of new retirement income premiums – fan chart, 2014-24
Figure 16: Forecast of new retirement income premiums, 2014-24
Forecast methodology
PENSION POTS ACCESSED
Over half of pension plans accessed are fully withdrawn
Figure 17: Number of DC pension pots accessed for the first time, by usage, April 2016-March 2018
Full withdrawals concentrated among pots valued under £30,000
Figure 18: Proportional distribution of pension pots accessed, by pot size and usage, October 2017-March 2018
Higher number of modest pension pots now entering drawdown
Most accessing pension are under 65
Figure 19: Proportional distribution of pension pots accessed, by customer age and usage, October 2017-March 2018
£25.6 billion withdrawn from pensions since start of Pension Freedoms
Figure 20: Flexible payments from pensions, Q2 2015-Q1 2019
ANNUITY MARKET SEGMENTATION
Enhanced annuities now account for two fifths of sales
Figure 21: Annuity sales, by product type, 2016-18
CHANNELS TO MARKET
Half of annuity sales made on the open market
Figure 22: Breakdown of annuity and income drawdown sales, by internal and external channels, 2014-18
Most annuities sold without advice
Figure 23: Number of new annuity sales, by channel, 2014-18
Around half of drawdown business goes via IFAs
Figure 24: Number of new drawdown sales, by channel, 2014-18
Intermediary definitions
MARKET DRIVERS
In-force DC pension scheme numbers surpass 26 million in 2017
Figure 25: Number of individual and group pensions in force and number of occupational DC members, 2013-17
10.1 million workers have been auto-enrolled
Brexit uncertainty continues to supress annuity rates
Trend of working into old age will boost demand for flexible solutions
REGULATORY AND LEGISLATIVE CHANGES
FCA reveals final rules after Retirement Outcomes Review consultation
‘Wake-up’ packs
Annuity information prompt
More clarity around the cost of drawdown
FCA sets out Final Rules on Pension Investment Pathways
Early versions of Pensions Dashboards due to be launched soon
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
Deficient level of competition in the annuity market
More competition exists in drawdown market
Product development focused on flexibility and retirement planning
KEY PLAYERS AND MARKET MOVERS
Over 50 firms offer retirement income products
The top annuity providers
Recent sales figures
Figure 26: New annuity business, by the largest providers, 2018
There are just six providers offering annuities on the open market
More companies are active in the income drawdown market
COMPETITIVE STRATEGIES AND INNOVATION
Control and flexibility are key drivers for product development
Just Group launches flexible annuity called Secure Lifetime Income
Smart Pension and L&G unveil prototype of retirement income solution
Canada Life launches Diversified Monthly Income Fund
AJ Bell introduces two income funds
Automation expected to improve access to personalised advice
THE CONSUMER – WHAT YOU NEED TO KNOW
Two thirds now have a pension
Most plan to access DC pension at state pension age or later
Annuities more likely to be considered as an option than drawdown
At least half are unprepared about use of pension pot in retirement
Uncertainty is the key driver of pension concerns
Control and flexibility are key but questions about engagement remain
PENSION OWNERSHIP AND ACCESS
Most full-time workers own a pension
Many savers hold multiple pension pots
Figure 27: Ownership of single and multiple pension pots, June 2019
More people say they have a DB pension than a DC one
Figure 28: Type of pension owned, by number of pension pots, June 2019
Nearly half of DC pension holders have multiple pots
Figure 29: Proportion of pension savers with a single pot versus two or more pots, by type of pension, June 2019
Half of over-55s have accessed their pension savings
Figure 30: Proportion of DC pension holders aged 55+ who have accessed pension pot, June 2019
AGE EXPECTING TO ACCESS PENSION
Most expect to access DC savings at state pension age or later
Figure 31: When DC pension holders expect to access their pension (under-65s only), June 2019
A notable minority plan to delay access after state pension age
DECUMULATION OPTIONS LIKELY TO CONSIDER
Annuities remain more appealing than drawdown
Figure 32: Decumulation options likely to consider, June 2019
Partial cash withdrawal still the single most likely option considered
Pension Freedoms mean people have the option to vary their approach
PLANNING FOR USE OF PENSION IN RETIREMENT
Half yet to consider or unsure about use of pension pots in retirement
Figure 33: Level of planning about use of pension savings in retirement, June 2019
Many a decade or less away from state retirement are unprepared
55% are confident about managing their pension
Figure 34: Level of confidence about making decision about pension savings, June 2019
CONCERNS ABOUT USE OF PENSIONS IN RETIREMENT
Uncertainty is the key driver of pension concerns
Figure 35: Concerns about the use of pension pot, June 2019
Most have multiple concerns
Figure 36: Repertoire analysis on concerns about the use of pension pot, June 2019
Figure 37: Concerns about the use of pension pot, by number of concerns held, June 2019
Few are concerned about access to professional advice
Failing to improve access to advice regulators have shifted their focus
ATTITUDES AND EXPECTATIONS ABOUT RETIREMENT INCOME
A secure income for life is what everybody wants…
Figure 38: Agreement with statements about pensions and retirement income, June 2019
…but control and flexibility are also top priorities
One in five admit that planning for retirement isn’t a priority for them
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Abbreviations
Consumer research methodology
APPENDIX – MARKET SIZE AND FORECAST
Total market forecasts – best- and worst-case scenarios
Figure 39: Forecast of new retirement income sales – best- and worst-case scenarios, 2019-24
Figure 40: Forecast of new retirement income premiums – best- and worst-case scenarios, 2019-24
Forecast methodology