Annuities - UK - August 2014

INTRODUCTION
Report scope
Abbreviations
EXECUTIVE SUMMARY
The market
Annuity sales dropped by 15% in 2013
Figure 1: Forecast of value of annuities sales, 2009-19
Non-advised sales now dominate the annuities market
Figure 2: Value of total annuities policy sales, by sales channel, 2013
Market factors
Longer retirements pose challenges for consumers and insurers…
Figure 3: Life expectancy at age 65, 1981-2062
… and increases dependency on workers
Rock-bottom interest rates make non-pensions savings less attractive…
Figure 4: BoE base rate, CPI, RPI monthly changes, January 2009-June 2014
… but annuity rates are hardly appealing
Figure 5: Annuity rates and gilt yields, January 1991-July 2014
Reforms set to revolutionise the retirement industry
All retirees to receive free guidance
Companies, products and innovations
Aviva is the market leader in annuity sales
Figure 6: Market share of top four annuity providers versus rest of annuities market, 2013
Insurers withdrew from advertising in 2013/14 as uncertainty rose
Figure 7: Total adspend on annuities and income drawdown products, 2012-14
Insurers offer new products in response to the Budget
The consumer
A quarter of over-45s will be eligible to buy an annuity
Figure 8: Pension and investment product ownership, May 2014
Three quarters are aware of pension reforms, but only half feel they understand the implications
Figure 9: Awareness of changes to pension market announced in 2014 Budget, May 2014
Less than a quarter of potential annuity customers are planning to buy one
Figure 10: Expected retirement income plans, May 2014
Most people expect to see an IFA about their retirement options
Figure 11: Expected sources of retirement information, May 2014
Core annuity features remain top of most retirees’ wishlist
Figure 12: Desired features of retirement income, May 2014
What we think
ISSUES AND INSIGHTS
People need to be shown why an annuity may still be their best option
The facts
The implications
Guaranteed guidance must convince straight away, starting online
The facts
The implications
TREND APPLICATION
Be open about death to offer the most suitable product
Highlight the disappointment of having a small pension fund
Preparing for retirement starts now!
MARKET DRIVERS
Key points
Longer lives are stretching pension provisions
Figure 13: Life expectancy at age 65, 1981-2062
An ageing population will increase dependency on workers
Figure 14: Projected proportion of UK population by age bands, 2013-62
A worrying proportion have little or no pension provision
Figure 15: Pension and investment product ownership, May 2014
Savers continue to suffer low rates
Figure 16: BoE base rate, CPI, RPI monthly changes, January 2009-June 2014
Annuity rates remain low
Figure 17: Annuity rates and gilt yields, January 1991-July 2014
REGULATORY ENVIRONMENT
Key points
Pension liberalisation promises to revolutionise retirement
Guidance guarantee to help retirees with new options
INCOME DRAWDOWN OVERVIEW
Key points
Almost 50% growth in income drawdown value
Figure 18: Annuities versus income drawdown plans, 2009-13
External sales still dominate income drawdown plans
Figure 19: Share of external and internal sales of annuities and income drawdown plans, 2013
Nearly nine in ten income drawdown plans are IFA-arranged
Figure 20: New income drawdown plans, by sales channel, 2013
SWOT ANALYSIS
Figure 21: Annuities market SWOT analysis, August 2014
WHO’S INNOVATING?
Key points
Partnership offers get-out option with Enhanced Choice
LV= and Just Retirement launch one-year fixed term annuities
Fidelity’s Retirement Service offers guidance to new pension freedoms
MARKET SIZE AND FORECAST
Key points
Fall in sales of annuities, with trouble ahead
Figure 22: Volume and value of new annuities sales, 2009-13
Market forecast
It will take time for annuities sales to recover
Figure 23: Forecast of value of annuities sales, 2009-14
Figure 24: Forecast of value of annuities sales, 2009-14
Forecast methodology
Fan chart explanation
SEGMENT PERFORMANCE
Key points
Most annuities are bought with smaller pension funds
Figure 25: Share of annuities sold, by size of pension fund, 2013
Growth in annuities bought for over £70,000
Figure 26: Number of annuities sold, by size of pension fund, 2009-13
Enhanced policies continue to grow
Figure 27: Annuities market segment performance, enhanced annuities by total sales, 2009-13
MARKET SHARE
Key points
Aviva is the UK’s largest annuity provider
Figure 28: Top 15 providers in the UK annuity market, by premiums, 2011-13
Top four annuities providers make up over half of the market
Figure 29: Market share of top four annuities providers versus rest of annuities market, 2013
COMPANIES AND PRODUCTS
Aviva
Legal & General
Prudential
Just Retirement (Avallux Sarl)
Partnership Assurance (Cinven Ltd)
Note on companies and products
BRAND COMMUNICATION AND PROMOTION
Key points
Adspend dropped by half in 2013-14
Figure 30: Total adspend on annuities and income drawdown products, 2012-14
Aviva are the biggest spending advertisers in retirement income
Figure 31: Top five advertisers of annuities and income drawdown products, 2012-14
Big drop in press advertising
Figure 32: Total adspend on annuities and income drawdown products, by media type, 2012-14
A note on adspend
CHANNELS TO MARKET
Key points
External annuities reach parity with internal sales
Figure 33: Share of external versus internal new annuity sales, 2003-13
Direct sales dominate the market…
Figure 34: Volume of total annuities policy sales, by sales channel, 2013
… but advised policies are disproportionately valuable
Figure 35: Value of total annuities policy sales, by sales channel, 2013
PENSION AND INVESTMENT PRODUCT OWNERSHIP
Key points
A quarter of over-45s could buy an annuity at retirement
Figure 36: Pension and investment product ownership, May 2014
Men are more likely to have a DC pension than women…
Figure 37: Potential annuitants, by gender, May 2014
…while DC pension ownership grows alongside income
Figure 38: Potential annuitants, by household income, May 2014
Potential annuitants are more likely to engage in other saving products
Figure 39: Ownership of non-pension savings, potential annuitants versus all, May 2014
AWARENESS OF BUDGET CHANGES
Key points
Only half understand pension liberalisation
Figure 40: Awareness of changes to pension market announced in 2014 Budget, May 2014
Awareness is highest among older consumers
Figure 41: Awareness of changes to pension regulations, by age, May 1024
Higher earners and higher-educated have a greater understanding
Potential annuitants have better awareness and understanding
Figure 42: Awareness of changes to pension regulations, potential annuitants versus all, May 2014
EXPECTED RETIREMENT INCOME PLANS
Key points
Less than a quarter of potential annuitants plan to buy one
Figure 43: Expected retirement income plans, May 2014
Income drawdown could challenge annuities as first-choice for retirees
Encashment could be as common as standard annuities
Four in ten are unsure about what they intend to do
EXPECTED SOURCES OF RETIREMENT INCOME INFORMATION
Key points
Most expect to get advice from an IFA
Figure 44: Expected sources of retirement income information, May 2014
Undecided savers are more likely to use an IFA
Figure 45: Expected sources of retirement income information, by expected retirement income plans, May 2014
Only 15% intend to use an independent guidance organisation
Half of DC pension-holders will use non-professional advice
DESIRED FEATURES OF RETIREMENT INCOMES
Key points
Consumers want a reliable income
Figure 46: Desired features of a retirement income, May 2014
Annuity features are still popular among those who plan not to buy one
Figure 47: Desired features of retirement income, by expected retirement income plans, May 2014
Male desire to provide for dependents could boost protected annuities
APPENDIX – MARKET SIZE AND FORECAST
Figure 48: Best- and worst-case forecast of the value of annuities sales, 2014-19
APPENDIX – PENSION AND INVESTMENT PRODUCT OWNERSHIP
Figure 49: Pension and investment product ownership, by demographics, May 2014
Figure 50: Pension and investment product ownership, by demographics, May 2014 (continued)
Figure 51: Pension and investment product ownership, by demographics, May 2014 (continued)
APPENDIX – AWARENESS OF BUDGET CHANGES
Figure 52: Awareness of changes to pension market announced in 2014 budget, by demographics, May 2014
APPENDIX – EXPECTED RETIREMENT INCOME PLANS
Figure 53: Expected retirement income plans, by demographics, May 2014
Figure 54: Expected retirement income plans, by demographics, May 2014 (continued)
Figure 55: Expected retirement income plans, by demographics, May 2014 (continued)
APPENDIX – EXPECTED SOURCES OF RETIREMENT INCOME INFORMATION
Figure 56: Expected sources of retirement income research, by demographics, May 2014
Figure 57: Expected sources of retirement income research, by demographics, May 2014 (continued)
APPENDIX – DESIRED FEATURES OF RETIREMENT INCOMES
Figure 58: Desired features of retirement incomes, by demographics, May 2014
Figure 59: Desired features of retirement incomes, by demographics, May 2014 (continued)