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Annuities - UK - August 2013

Published By :

Mintel

Published Date : Aug 2013

Category :

Banking

No. of Pages : 114 Pages


The pensions landscape is changing. Older people are set to work for longer and delay their annuity purchase and younger people are facing a future of inadequate pension savings. Increased flexibility as well as more education and advice around annuity products – particularly non-standard annuity products – is required in order to better equip consumers to make annuity decisions.
Table of Content

Introduction
Report scope
Abbreviations

Executive Summary
The market
New annuity premiums increased by 25% in 2012
Figure 1: Value of new pension annuity business, at current prices, 2008-18
Intermediaries play an important role in the annuity market
Figure 2: New pension annuity premiums, by sales channel, 2007-12
Market factors
Increased longevity requires changes in attitudes towards retirement
Figure 3: Expectations of life at 65, 1981-2058
Increase in pension age population projected over next 40 years
Living for longer means working for longer for many
Around 4 million over-45s are potential annuitants
Annuity rates remain low but show some signs of improvement
Figure 4: Annuity rates and gilt yields, January 1991-July 2013
QE sees has negatively impacted pension pay-outs…
which has increased interest in enhanced annuities
Stockmarket improvements could peak interest in investment-linked annuities
Figure 5: FTSE 100 and FTSE All Share – monthly index movements, January 2004-June 2013
Auto-enrolment is set to have a long-term impact on annuities
The impact of regulation continues to shape the annuity market
Income drawdown market is dwarfed by the annuity market
Companies, products and innovations
The annuity market is dominated by 5 big players
Figure 6: Top 5 providers in the UK annuity market, by new APE premiums, 2012
Flexibility introduced to Just Retirement’s fixed-term annuity
Tesco looks to test the waters in the booming annuity market
Not-for-profit service launched to help advisers work with the OMO
The consumer
Just over a quarter of over-45s are potential annuitants
Figure 7: Savings and Investment Ownership, June 2013
Some 53% of over-45s will use a personal pension to fund their retirement
Figure 8: Retirement funding plans, June 2013
IFAs and financial planners will continue to play an important role in annuity selection
Figure 9: Annuity research preferences, June 2013
Flexibility in retirement income ranks high for nearly a third of non-retired over-45s
Figure 10: Attitudes towards annuities, June 2013
What we think

Issues in the Market
Is more education needed on the different types of annuity?
Will we see more over-65s working to fund their retirement?
Do non-traditional retirement funding plans pose a risk to the annuity market?
To what extent are people realistic about their retirement income expectations?
What role does the adviser have to play in the annuity market going forward?

Trend Application
Working past 65 is good for the health and the pocket
Expertise is in demand in the annuity market
Taking care of the elderly could be mutually beneficial

Market Drivers
Key points
Increased longevity places pressure on annuities
Figure 11: Expectations of life at 65, 1981-2058
A 30% increase in the number of people turning 65 in 2012
Figure 12: Projected size of the UK population, by age band, 2012-56
Just over a quarter of non-retired over-45s hold a DC pension
Increase in the number of over-65s working
Annuity rates show some signs of improvement
Figure 13: Annuity rates and gilt yields, January 1991-July 2013
Stockmarket improvements boost interest in investment-linked annuities
Figure 14: FTSE 100 and FTSE All Share – monthly index movements, January 2004-June 2013
Auto-enrolment is set to have a long-term impact on annuities

Regulatory Environment
Key points
ABI Code of Conduct designed to build consumer confidence
External annuity sales continue to increase
Figure 15: Share of external versus internal new pension annuity sales, 2001-12
Gender Directive set to mean that women receive higher annuity rates
Solvency II impact expected to be limited
RDR could reduce number of advised sales
FCA looks to investigate annuity market

Income Drawdown Overview
Key points
Income drawdown market is dwarfed by the annuity market
Figure 16: New sales of pension annuities versus income drawdown plans, 2007-12
External sales dominate in the drawdown market
Figure 17: Proportional distribution of external and internal sales of pension annuity and income drawdown products, 2012
IFAs are even more dominant in the income drawdown market
Figure 18: New pension income drawdown premiums, by sales channel, 2008-12

SWOT Analysis
Figure 19: SWOT Analysis for the annuities market, August 2013

Who’s Innovating?
Key points
Just Retirement introduces flexibility to its fixed-term annuity product
Tesco launches annuity comparison service
Annuity quotation portal launched by iPipeline
Wrap platform Nucleus launches annuity portal
Annuity lead generation tool launched

Market Size and Forecast
Key points
Annuity business strengthens in 2012
Figure 20: New pension annuity business – number of new contracts and the value of new premiums, 2007-12
The value of new annuity business is set to continue to rise
Figure 21: Value of new pension annuity business, at current prices, 2008-18
Figure 22: Value of new pension annuity business, at current prices, 2008-18
The number of new annuity contracts is also expected to grow
Figure 23: Volume of new pension annuity business, 2008-18
Figure 24: Volume of new pension annuity business, 2008-18
Forecast methodology

Segment Performance
Key points
Small pension pots account for the bulk of annuity sales
Figure 25: Proportional distribution of annuities sold, by fund size, 2012
Mid-sized fund growth continues to prevail
Figure 26: Number of annuities sold, by size of fund, 2007-12
Investment and enhanced annuities grow in popularity
Figure 27: Breakdown of pension annuity sales, by main product type, 2010-12
Enhanced annuities sales reach record levels in 2012
Figure 28: Number of new enhanced/impaired life annuity contracts and as a percentage of total annuities sold, 2009-12

Market Share
Key points
Aviva remains the top annuity provider by new APE premiums
Figure 29: Top 15 providers in the UK annuity market, by new APE premiums, 2011-12

Companies and Products
Aviva
Company description
Product range
Distribution
Key data
Recent activity
Prudential
Company description
Product range
Distribution
Key data
Recent activity
Legal & General
Company description
Product range
Distribution
Key data
Recent activity
Partnership Assurance (Cinven Ltd)
Company description
Product range
Distribution
Key data
Recent activity
Just Retirement (Avallux Sarl)
Company description
Product range
Distribution
Key data
Recent activity

Brand Communication and Promotion
Key points
An active annuity market isn’t reflected in falling adspend
Figure 30: Above-the-line consumer advertising expenditure on annuities and income drawdown products, 2011-13
Aviva is the top advertiser of annuity and income drawdown products
Figure 31: Top six advertisers of annuities and income drawdown products, 2011-13
Large increase in press adspend as providers push the OMO message
Figure 32: Advertising expenditure on annuities and income drawdown products, by media type, 2011-13
A note on adspend

Channels to Market
Key points
Non-advised annuity sales account for 62% of new contracts in Q1 2013
Figure 33: Volume and value of annuity sales using new ABI reporting format, Q1 2013
New annuity premium distribution dominated by IFAs
Figure 34: New pension annuity premiums, by sales channel, 2007-12
Advisers expected to retain role in Post-RDR market
Distribution of income drawdown

Savings and Investment Ownership
Key points
Just over a quarter of those aged 45+ are potential annuitants
Figure 35: Savings and Investment Ownership, June 2013
Potential annuitants more likely to be financially savvy
DC pension holders spread their risk amongst other savings products
Figure 36: Savings and investment ownership, by most popular savings and investment ownership, June 2013

Retirement Funding Plans
Key points
Over-45s are expecting their pensions to support them through retirement
Figure 37: Retirement funding plans, June 2013
8% expect to use equity in home to boost retirement finances
Consumers with one type of retirement funding plan are set to rely on state pension
Figure 38: Repertoire of retirement funding plans, June 2013
Multiple retirement funding strategies reduce the dependency on annuity income
Figure 39: Savings and investment ownership, by repertoire of retirement funding plans, June 2013
Employment in retirement is a preferred choice for some
Figure 40: Savings and investment ownership, by selected retirement funding plans, June 2013
Older people more likely to fund retirement through some form of work
Figure 41: Plans to fund retirement through some form of employment, by age

Annuity Research Options
Key points
Professional advice proves popular for potential annuitants
Figure 42: Annuity research preferences, June 2013
Only a minority expect that they will not research annuity options
Women are less likely to seek professional annuity advice
Figure 43: Annuity research preferences, by gender, June 2013

Attitudes Towards Annuities
Key points
Flexibility is key for those looking for a retirement income
Figure 44: Attitudes towards annuities, June 2013
Lack of awareness over enhanced annuity products
Advice seekers and online researchers looking for flexible products
Figure 45: Attitudes towards annuities, by annuity research preferences, June 2013

Appendix – Market Size
Figure 46: Value of new pension annuity business, 2013-18
Figure 47: Volume of new pension annuity business, 2013-18

Appendix – Savings and Investment Ownership
Figure 48: Most popular savings and investment ownership, by demographics, June 2013
Figure 49: Next most popular savings and investment ownership, by demographics, June 2013
Figure 50: Other savings and investment ownership, by demographics, June 2013

Appendix – Retirement Funding Plans
Figure 51: Most popular retirement funding plans, by demographics, June 2013
Figure 52: Next most popular retirement funding plans, by demographics, June 2013
Figure 53: Repertoire of retirement funding plans, by demographics, June 2013

Appendix – Annuity Research Options
Figure 54: Annuity research preferences, by demographics, June 2013

Appendix – Attitudes Towards Annuities
Figure 55: Attitudes towards annuities, by demographics, June 2013

Appendix – Market Background and Product Definitions
Figure 56: Overview of the annuity and retirement income market, 2012
Single and joint life policies
The Open Market Option
The ABI Code of Conduct
Alternative Solutions

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