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Securing New Business in the UK Pensions Market - UK - February 2007

ISSUES IN THE MARKET
Key issues
Market definitions
The State System
The voluntary private funded sector
Figure 1: Types of private pension provision, UK
 ABBREVIATIONS
INSIGHTS AND OPPORTUNITIES
A large untapped market implies major opportunity
Scope to transform spending priorities
Young working women are key to new business
Boost take-up among wealthy cohabiting couples
A constant approach is needed to build consumer confidence
Taxing pension income at a reduced rate would be an ideal incentive
Personal accounts: a solution to the pensions problem?
A cautionary note
Estimated size of the target market for personal accounts
MARKET IN BRIEF
At the heart of the matter
An improving savings and investment climate
New proposals announced to boost participation
Competitive forces at play
Legislative changes boost pension transfers and new sales
Contributions are also up
IFAs produce the lion’s share of business
Contraction in supply
Advertising activity boosted by rising demand
Nearly half of all non-retired adults are saving in a pension
Public opinion of pensions is fairly low…
… but there is promising support for personal accounts
Winning over non-pension savers
FAST FORWARD TRENDS
Am I bovvered? ‘Generation why?’
Definition
Context
Market touchpoints/implications
Trust in me
Definition
Context
Market touchpoints/implications
Home as pension
Definition
Context
Market touch points/implications
BROADER MARKET ENVIRONMENT
Key points summary:
The ‘demographic time bomb’
Implications
Changing work patterns
Implications
Economic backdrop
Implications
Stronger growth for savings forecast
Figure 2: Total PDI, consumer expenditure and savings, 2002-11
Implications
Recent stockmarket woes still resonate…
Final-salary scheme closures
Crisis in confidence
… although the Footsie continues on an upward path
Figure 3: FTSE 100 and FTSE All Share – daily index movements, December1999-December 2006
Broker predictions are cautiously positive
INTERNAL MARKET ENVIRONMENT
Key points summary:
Pension participation is declining, when it should be increasing
Current private pension coverage
Figure 4: Participation in private pension schemes, November 2006
Alternative arrangements
Reasons behind lack of pension provision
Psychological barriers
An issue of trust
Physical barriers
Affordability
Consumer apathy
Lack of understanding
Pensions reform
Pensions Bill
Second Pensions White Paper
Personal accounts – a new mechanism for saving
Low charges are unworkable, say pensions industry
Positive implications
Employer opposition
Complement, not compete
Some existing schemes could move upmarket
But others could trade down
Pensions simplification and a new tax regime
Implications and expectations
Immediate effects
Inheritance tax U-turn
Proposals reduce the appeal of family SIPPs
COMPETITIVE CONTEXT
Key points summary:
Pensions compete with a host of other financial priorities
Figure 5: Contextual model for private pensions – money flows
Pension alternatives
Figure 6: Retirement funding strategies
Strong growth in second property market
ISAs are another popular retirement saving vehicle
Using the business to fund retirement
Limited options for those without retirement savings
The core challenge is one of persuasion
STRENGTHS AND WEAKNESSES IN THE MARKET
Figure 7: The UK pensions market – key strengths and weaknesses, 2006
Complexity
Increased costs
Stakeholder pensions fail to hit the mark
Compulsory enrolment
WHO’S INNOVATING?
Depolarisation has exerted a subtle influence
Technological advances
Stakeholder pensions fail to capture the public’s imagination
Personal accounts: will they stifle or boost innovation?
THE NON-SAVER TARGET MARKET
The size of the target audience for personal accounts
Figure 8: The size of the non-saver target market, November 2006
Exemptions
TRADE PERSPECTIVE
About the participating companies
How have A-Day changes impacted on new pensions business?
Personal accounts: good or bad idea?
Which approach is best?
What impact will the new scheme have on existing arrangements?
What innovations are likely over the short-term?
MARKET SIZE AND FORECAST
Key points summary:
Employer pension contributions have increased strongly…
Figure 9: Contributions to private pension schemes – UK, 2001-05
… but individuals need to contribute more
New individual pensions sales storm ahead in 2006
Figure 10: Individual pension sales, 2001-06
Factors behind the growth
Record year for SIPP providers
Moving into the mainstream
Steady growth forecast
Figure 11: Forecast of individual pension sales, 2006-11
The group single-premium sector sees impressive growth
Figure 12: Group pension sales, 2001-06
Growth areas
Single-premium group sales are set to rise further
Figure 13: Forecast of group pension sales, 2006-11
Factors incorporated
MARKET SHARE
Key points summary:
The changing composition of the market
A banking offensive
Standard Life tops the new pensions business rankings
Figure 14: Top ten UK pensions providers, by new premium income, 2005
Changes to top five
New pensions business boosted by A-Day changes
COMPANIES AND PRODUCTS
Winning products
SIPPs: the vehicle of choice for consolidating multiple pension funds
Profiles of the top five largest pensions providers
Standard Life
Scottish Widows
Norwich Union
AEGON Scottish Equitable
Friends Provident
BRAND COMMUNICATION AND PROMOTION
Key points summary:
The importance of branding
Establishing a relationship with the target market
A successful brand can help new business acquisition
Use of consumer advertising is fairly limited…
…but it is on the increase
Figure 15: Total advertising expenditure on selected pension products, 2002-06
Adspend is concentrated on the press
Figure 16: Proportional distribution of pensions adspend, by media type, 2002-06
Scottish Widows was the leading pensions advertiser in 2006
Figure 17: Advertising expenditure by the top ten pensions advertisers, 2005 and 2006
CHANNELS TO MARKET
Key points summary:
Most pension business is sold with advice
Individual pension sales via bancassurance route more than double in 2006
Figure 18: Individual pensions premiums, by sales channel, 2001-06
Bancassurance model proving successful
Single-tie channel recovers its share of new regular premiums in 2006
Figure 19: Proportional distribution of individual regular-premium business, by sales channel, 2001-06
Direct sales account for a very small proportion of new single premiums
Figure 20: Proportional distribution of individual single-premium business, by sales channel, 2001-06
IFAs help drive group pension sales in 2005-06
Figure 21: Group pensions premiums, by sales channel, 2001-06
IFA channel picks up share of new group regular premiums in 2006
Figure 22: Proportional distribution of group regular-premium business, by sales channel, 2001-06
Direct sales continue to recede in the single-premium group sector
Figure 23: Proportional distribution of group single-premium business, by sales channel, 2001-06
CONSUMER FINANCIAL ACTIVITY
About the Financial Activity Bulletin
Activity levels look set to drop sharply
Figure 24: Savings, investment, borrowing and debt repayment – consumers’ expected activity, June 2005-September 2006
UK savings and spending climate
Figure 25: UK savings and spending climate – indexed, January 2001-October 2006
Subdued picture across all sub-groups
Figure 26: Expected financial activity, by socio-demographic and income groups, September 2006 and average for the last 19 quarters
Less appetite for pensions savings going forward
Figure 27: Leading financial activities planned in the next six months, September 2005-September 2006
Property intentions may be hit by the rate rise
Figure 28: Intended mortgage and property purchase activity, September 2004-September 2006
Identifying the main financial services providers
Bank of Scotland and Halifax customers will be the busiest
Figure 29: Activity levels of main financial services providers’ customer bases, September 2006
NatWest and Barclays customers are looking to repay debt
Figure 30: Activity intentions and current household financial situation, by MFSP, September 2006
THE CONSUMER – PENSION PARTICIPATION
Key points summary:
Survey background
Just over half of all non-retired adults are not saving in a pension
Figure 31: Proportion of adults contributing to a pension, by type of scheme, November 2006
Options for leavers
The gender divide
Figure 32: Proportion of adults making pension contributions, by gender, age, socio-economic group, marital status and lifestage, November 2006
Pension participation is highest among the middle-to-high age groups
Single people are least likely to have pension savings
Pension participation increases up the socio-economic scale
Working status and wealth heavily determine take-up
Figure 33: Proportion of adults making pension contributions, by working status, household income, tenure, region and ACORN category, November 2006
Regional variations
Most pension holders are saving less than £100 a month…
Figure 34: Pension-holders’ monthly contributions, by type of pension, November 2006
Implications
…but the majority say that they could contribute more
Figure 35: Proportion of pension holders who could afford to save more, November 2006
Additional analysis
THE CONSUMER – ATTITUDES AND EXPECTATIONS
Key points summary:
Coming up
Many people are put off by ever-changing pension rules
Figure 36: Views on retirement and pension rules, November 2006
Implications and opportunities
One in four pension savers worry about how they’ll manage financially when they retire
Implications and opportunities
Most non-pension savers do not want to work beyond age 60/65
Implications and opportunities
3 million can’t afford to retire
Figure 37: Cross-analysis – views on retirement and pension rules, November 2006
The closer people get to retirement, the more they are likely to worry
Figure 38: Views on retirement and pension rules, by gender, age, socio-economic group, working status, household income and region, November 2006
Less than a third of non-retired adults believe a pension is the best way to save for retirement…
… while two fifths think pension income shouldn’t be taxed
Figure 39: Agreement with statements about pensions, November 2006
Implications and opportunities
Confidence lost
Is property a better bet?
Some support for compulsion
Means testing – striking the right balance
Figure 40: Cross-analysis – agreement with statements about pensions, November 2006
Opportunity to restore public faith in pensions
Government still needs to iron out confusion over means testing
ABs and Londoners are most pro compulsion
Figure 41: Agreement with postive statements about pensions, by gender, age, socio-economic group, working status, household income and region, November 2006
More support for pensions in the South
Few are aware of, or value, tax relief on contributions
Women have greater confidence in pension companies than men
Figure 42: Agreement with negative statements about pensions, by gender, age, socio-economic group, working status and region, November 2006
Self-employed favour property over a pension
Two in three of those in the £35K-50K income group think that taxing pension income is unfair
A much greater proportion like the idea of a national pension scheme than dislike it
Figure 43: Attitudes towards personal accounts, November 2006
A minority of existing pension savers express interest in transferring into the new scheme
Some are concerned about the cost implications
Personal account typologies
Figure 44: Population segmented by attitudes towards personal accounts, November 2006
Typology make-up
Figure 45: Attitudes towards personal accounts, by typology, November 2006
Positive in Principle (25%)
Conditionally Keen (23%)
Undecided (28%)
Cynical (24%)
The Undecided are least likely to be saving in a pension
Figure 46: Pension saving profile, by typology, November 2006
ABC1s are most likely to be Positive in Principle
Figure 47: Personal account typologies, by gender, age, socio-economic group, marital status and lifestage, November 2006
Low-middle income groups have a strong tendency to be Conditionally Keen
Figure 48: Personal account typologies, by working status, household income, tenure, region and ACORN category, November 2006
THE CONSUMER – REACHING NON-PENSION SAVERS
Key points summary:
Coming up
CHAID analysis identifies the main drivers
What is CHAID analysis?
The main target groups identified
Figure 49: Target groups identified for the UK pensions market, November 2006
Driver 1: age
Driver 2: income
There are many reasons why people choose not to save in a pension…
Figure 50: Reasons for not saving in a pension, November 2006
…although financial factors play a prominent part…
Figure 51: Reasons for not saving in a pension, by gender, age, socio-economic group, marital status and lifestage, November 2006
…particularly for low-income groups
Figure 52: Reasons for not saving in a pension, by working status, household income, tenure, region and ACORN category, November 2006
What would encourage them to save more?
Figure 53: Factors that would encourage people to start/save more in a pension, November 2006
Implications and opportunities
Cluster analysis
What is cluster analysis?
Pension clusters
Figure 54: Population segmented by the factors that would encourage them to start or save more in a pension, November 2006
Cluster composition
Figure 55: Factors that would encourage people to start or save more in a pension, by cluster, November 2006
Multi-influenced (8% of the sample)
Employer-led (18% of the sample)
Self-directed (21% of the sample)
Doubtful (53% of the sample)
Three fifths of the Multi-influenced are non-pension savers…
Figure 56: Proportion contributing to a pension, by type and cluster, November 2006
…and 70% of these think pension income shouldn’t be taxed
Figure 57: Agreement with statements about pensions and retirement plans, by cluster, November 2006
The Multi-influenced and Self-directed are most interested in personal accounts
Figure 58: Attitudes towards personal accounts, by cluster, November 2006
Around a quarter of 25-34-year-olds are Employer-led
Figure 59: Pension clusters, by gender, age, socio-economic group, marital status and lifestage, November 2006
Those living in the North West and Urban Prosperity areas prefer to be Self-directed
Figure 60: Pension clusters, by working status, household income, tenure, region and ACORN category, November 2006
Heavy TV viewers and Iceland shoppers are the most Doubtful
Figure 61: Pension clusters, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, November 2006
Non-pension savers need the most persuasion
Figure 62: Clusters segmented by pension saving activity, November 2006
Over a quarter of Multi-influenced and Employer-led non-pension savers are gripped by inertia
Figure 63: Reasons for not saving in a pension, by cluster, November 2006
Two fifths of Employer-led non-pension savers could afford to save over £50pm
Figure 64: Amount able to save in a pension per month, by cluster (non-pension savers only), November 2006
Further analysis

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