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Annuities - UK - August 2015

OVERVIEW
EXECUTIVE SUMMARY
The market
Sales of annuities fell by half in 2014
Figure 1: Forecast of the value of new annuity sales, 2010-20
Key players
Just Retirement leads a concentrated market
Figure 2: UK annuity market share, by share of gross written premiums, 2014
The consumer
19% have a DC pension, and ownership is growing
Figure 3: Pension and investment product ownership, May 2015
Understanding of pension freedoms is encouraging
Figure 4: Awareness of pension freedoms, May 2015
Income drawdown is the top pick for arranging retirement income
Figure 5: Expected plans for use of pension funds to provide a retirement income, May 2015
Savings and investments are the most popular use of withdrawn funds
Figure 6: Expected use of pension freedoms cash, May 2015
17% expect to use Pension Wise
Figure 7: Sources expected to be used to get retirement income information, May 2015
People still want guaranteed incomes
Figure 8: Desired features of retirement income, May 2015
What we think
ISSUES AND INSIGHTS
Personalised online tools can help plug the advice gap
The facts
The implications
Freedoms cash plans are more cautious than feared
The facts
The implications
Hybrid products seem perfect, but have their own challenges
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Sales of annuities fell by half in 2014
Retirement income is an increasingly important social issue
Internal and non-advised sales rise
Boom in income drawdown sales
MARKET SIZE AND FORECAST
Budget reforms cut annuity sales in half in 2014
Figure 9: Volume and value of new annuity sales, 2010-15
Market forecast
Figure 10: Forecast of the value of new annuity sales, 2010-20
MARKET DRIVERS
Pension freedoms take effect
Longer retirements should make guaranteed incomes more attractive…
Figure 11: Actual and projected life expectancies at 65, by gender, 1981-2062
…but not until rates improve
Figure 12: Annuity rates and gilt yields, January 1991-June 2015
Increased dependency ratio will strain state support
Figure 13: Projected proportion of UK population, by age bands, 2014-62
Delayed state pensions put more focus on personal responsibility
Figure 14: Projected dates for full transitions to increased state pension ages, by gender
Auto-enrolment is changing the pensions industry forever
Figure 15: Pension provisions of UK workers, by type of pension, 2005-14
Those with smaller funds have deserted annuities quickest
Figure 16: Share of new annuity sales, by value of pension fund, 2004-14
CHANNELS TO MARKET
First rise in internal sales since 2007
Figure 17: Share of internal versus external new annuity sales, 2004-14
Small drop in advised sales
Figure 18: Volume of total annuities policy sales, by sales channel, 2013 versus 2014
Figure 19: Value of total annuities policy sales, by sales channel, 2013 versus 2014
INCOME DRAWDOWN OVERVIEW
Huge rise in income drawdown
Figure 20: Annuities versus income drawdown plans, 2010-14
Non-advised drawdown platforms make gains
Figure 21: Volume of new income drawdown contracts, by sales channel, 2013 versus 2014
Figure 22: Value of new income drawdown contracts, by sales channel, 2013 versus 2014
KEY PLAYERS – WHAT YOU NEED TO KNOW
Just Retirement leads a concentrated market
Companies find their place in a new market
MARKET SHARE
Just Retirement is the UK’s largest annuity provider…
Figure 23: Top 15 providers in the UK annuity market, by premiums, 2012-14
…but the market remains heavily concentrated
Figure 24: Market share of top five annuity providers versus rest of annuities market, 2014
COMPETITIVE STRATEGIES
Advertising spending has been slashed
‘Third way’ products set to boom
Focus on service
Adspend data coverage
THE CONSUMER – WHAT YOU NEED TO KNOW
19% have a DC pension, and ownership is growing
Understanding of pension freedoms is encouraging
Income drawdown is the top pick for arranging retirement income
Savings and investments are the most popular use of withdrawn funds
17% expect to use Pension Wise
People still want guaranteed incomes
PENSION OWNERSHIP
37% are in the potential annuities market…
Figure 25: Pension and investment product ownership, May 2015
…but inequalities remain
Figure 26: Potential annuitants, by gender, employment status and annual household income, May 2015
Most have one or two savings products
Figure 27: Repertoire of pension and investment product ownership, May 2015
Potential annuitants are the most likely to also save outside pensions
Figure 28: Ownership of any non-pensions savings and investments product, by pension ownership, May 2015
AWARENESS OF PENSION FREEDOMS
82% have some awareness of pension freedoms…
Figure 29: Awareness of pension freedoms, May 2015
…up 7 percentage points from 2014
Figure 30: Awareness of pension freedoms, May 2014 versus May 2015
Understanding is higher among those nearer to retirement…
Figure 31: Agreement with the statement “I am aware of the change and have at least some understanding of what it means”, by age, May 2015
…and those affected by freedoms
Figure 32: Awareness of pension freedoms, by pension ownership, May 2015
EXPECTED RETIREMENT INCOME PLANS
Income drawdown is the most popular retirement income plan…
Figure 33: Expected plans for use of pension funds to provide a retirement income, May 2015
…while just 18% still expect to get an annuity
Only 5% plan to take all their pension as a lump sum
USE OF PENSION FREEDOMS CASH
Half plan to invest pensions withdrawals…
Figure 34: Expected use of pension freedoms cash, May 2015
…while a fifth look to clear debts
Travel and retail markets set to benefit
11% plan to give a ‘living inheritance’
EXPECTED SOURCES OF RETIREMENT INCOME INFORMATION
17% plan to use Pension Wise
Figure 35: Sources expected to be used to get retirement income information, May 2015
Half expect to pay for advice…
…while non-pensions savers are most likely to use an IFA
Figure 36: Expected sources of retirement income information, by non-pensions saving ownership, May 2015
A third will research online
DESIRED FEATURES OF RETIREMENT INCOME
An annuity in all but name
Figure 37: Desired features of retirement income, May 2015
Prospective income drawdown customers still want a reliable income
Figure 38: Desire for a reliable retirement income, by expected retirement income plans, May 2015
Higher earners are more concerned with securing a life-long income
Figure 39: Desire for a retirement that features “An income that is guaranteed to pay out for the rest of my life”, by annual household income, May 2015
APPENDIX – MARKET SIZE AND FORECAST
Figure 40: Best- and worst-case forecast of the value of new annuity sales, 2015-20
APPENDIX – ABBREVIATIONS
Abbreviations

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