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Retirement Income Solutions - UK - August 2016

Published By :

Mintel

Published Date : Aug 2016

Category :

Banking

No. of Pages : N/A

The retirement income market has changed dramatically since 2014, with mixed fortunes for annuities and income drawdown products. Despite a huge contraction in new annuity sales, it’s clear that retirees still want a predictable and guaranteed income in retirement, and this could see hybrid and blended products come to prominence in the market. The UK’s vote to leave the EU has added further complexity for those heading towards retirement as annuity rates have fallen sharply in the weeks following the vote. This is likely to result in more people delaying their retirement income plans until more certainty prevails and will also provide a boost to the income drawdown sector of the market.

Table of Content

Overview

What you need to know
Products covered in this report

Executive Summary

The market
Annuity sales and premiums have decreased dramatically
Figure 1: New annuities contracts and premiums, 2011-15
Income drawdown market is the winner from pension freedoms
Brexit adds more uncertainty for those planning to retire
Pension auto-enrolment rumbles on
Lifetime ISA set to challenge traditional pensions
Companies and brands
Aviva is the top annuities provider for now
Figure 2: Market share of top five annuity providers and others in the market (excluding bulk and deferred annuities), 2015
Prudential withdraws from the opening annuities market
Defined benefit de-risking popularity
Popularity of hybrid and blended products set to increase
FCA takes a keen interest in robo- advice
The consumer
Nearly two thirds of over-45s have a pension product
Figure 3: Pension ownership, June 2016
Passive attitude towards pension savings
Figure 4: Consumer agreement with statements regarding their pension, June 2016
Under half understand pension reform changes
Figure 5: Consumer awareness of pension freedoms, June 2016
A third intend to take their tax free lump sum
Figure 6: Consumers plans to withdraw pensions cash, June 2016
Adding pensions cash to savings is most likely outcome from pension withdrawals
Figure 7: Consumer plans for spending pensions cash withdrawals, June 2016
What we think

Issues and Insights

Consumers take a conservative approach to pension withdrawals
The facts
The implications
Pension Wise popularity has increased, but need for tailored advice will see growth in robo-advice
The facts
The implications

The Market – What You Need to Know

Annuity sales and premiums have decreased dramatically
Income drawdown market is the winner from pension freedoms
Annuity internal sales increase again
Brexit impacts annuities appeal
Pension auto-enrolment rumbles on

Annuities – Market Size and Forecast

Individual annuity sales plummeted further in 2015
Figure 8: New individual annuity contracts and premiums, 2011-15
Annuity premiums also down but by a smaller percentage
Figure 9: Proportion of pension annuities sold by size of fund, 2010-15
Brexit vote further undermines appeal of annuities
Annuities to continue decline
Figure 10: Forecast of the value of new annuity sales, 2011-21
Figure 11: Total forecast value of new annuities, 2011-21
Forecast methodology

Income Drawdown – Market Size and Forecast

Figure 12: New income drawdown contracts and premiums, 2011-15
FCA data shows income drawdown sales have surpassed annuity sales
Figure 13: Income drawdown – Number of sales and premium amount 2013-15
Income drawdown popularity to increase after Brexit vote
Income drawdown market growth set to continue
Figure 14: Forecast of the value of new income drawdown sales, 2011- 21
Figure 15: Total forecast value of new income drawdown plans, 2011-21
Forecast methodology

Market Segmentation

Enhanced annuities market share is steadily increasing
Figure 16: Lifetime and enhanced annuities volumes and market share, 2011-15
Uncrystallised fund pension lump sum withdrawals prove unpopular
Figure 17: Options taken by people accessing pension pot for the first time in Oct-Dec 2015
Full encashment popular among those that have smaller pots
Figure 18: Number of pots fully withdrawn, by size of pot Oct- Dec 2015

Channels to Market

Overall increase in independent advice sales …
Figure 19: Volume of new annuities and income drawdown sales (combined), by method of purchase, 2014-15
… but there has been a reduction in independent advice Income drawdown sales
Figure 20: Volume of new income drawdown sales, by sales channel, 2014-15
Internal sales have increased again
Figure 21: Internal and external annuity sales, 2011-15
Figure 22: Internal and external income drawdown sales, 2015

Market Drivers

Ageing population will present a problem for the state
Figure 23: UK population projection, by age band, 2016-56
Life expectancy continues to increase
Figure 24: Projected life expectancy at 65, by gender, 1981-2064
Flat rate pension come in to force
DC ownership surpasses DB for the first time
Figure 25: Active members of private sector occupational pension schemes, 2004-14
Annuity rates continue to fall

Regulatory and Legislative Changes

Second hand annuity market
Pension Wise and the Pension Advisory Service to be merged
Financial Advice Market Review/Budget 2016
Prototype pensions dashboard due by 2017
Auto-enrolment nears completion
Lifetime ISA release on the horizon
Robo-advice department at FCA gets the green light
Mandatory annuity comparison tool could be introduced

Companies and Products – What You Need to Know

Aviva is the top annuities provider for now
Prudential withdraws from the opening annuities market
Defined benefit de-risking popularity
Popularity of hybrid and blended products set to increase
FCA takes a keen interest in robo-advice

Market Share – Annuities

Aviva leads the way in individual annuities market
Figure 26: Annuity sales by UK providers (excluding bulk and deferred annuities), 2015
Figure 27: Market share of top five annuity providers and others in the market (excluding bulk and deferred annuities), 2015
A note on income drawdown market share

Competitive Strategies

Just Retirement merges with Partnership
Prudential withdraws from open annuity market
Royal London offers free drawdown governance service
Define benefit de-risking and bulk annuity underwriting becomes more popular
Hybrid and blended products offer an alternative …
… but some providers have already withdrawn their products
Aviva launches face-to- face advice service
Robo-advice to offer alternative to those with smaller pension pots

The Consumer – What You Need to Know

Nearly two thirds of over-45s have a pension product
Passive attitude towards pension savings
Under half understand pension reform changes
A third intend to take their pension as a tax free lump sum
Adding pensions cash to savings is most likely outcome from pension withdrawals

Consumer Ownership of Pension Products

Almost two thirds own a pension product …
Figure 28: Pension ownership, June 2016
… but the gender divide still exists
Figure 29: Pension ownership, by gender, June 2016
Those who are parents of children 18+ are less likely to own a pension product
Almost two fifths own a pension freedom eligible product

Consumer Attitudes towards Retirement Income Planning

Passive attitude towards retirement income planning
Figure 30: Consumer agreement with statements regarding their pension, June 2016
Over half of consumers do not have a target for retirement

Awareness of Pension Freedoms

Under half understand the effects on pension freedoms
Figure 31: Consumer awareness of pension freedoms, June 2016
Similar level of knowledge among those that own DB or DC pensions
Figure 32: Consumer understanding of pension reform, by pension ownership, June 2016
Figure 33: Consumer awareness of pension freedoms, by household income, June 2016

Consumer Plans for Pension Fund Cash Withdrawals

Consumers take a conservative approach to cash withdrawals
Figure 34: Consumers plans to withdraw pensions cash, June 2016
Adding money to savings is important to over-45s
Figure 35: Consumer plans for spending pensions cash withdrawals, June 2016
Just over a quarter intend to use cash lump sum to pay debts
Travel providers are likely to benefit from pension reforms

Consumer Plans for Pension Funds

Third of consumers are unsure what they intend to do with their remaining pension pot
Figure 36: Consumer plans for pension fund at retirement, June 2016
Almost a fifth of consumers intend to keep their money invested in their pension pot
Similar levels of interest for both income drawdown and annuities

Desired Features of Retirement Income Products

Majority of over-45s want a predictable income
Figure 37: Consumers’ desired features of retirement income products
Hybrid products could provide the blend of products consumers want
Advisers to see a resurgence in popularity
Looking after family is also a concern for many
Figure 38: Consumers’ desired features of retirement income, by gender, June 2016
Annuities in everything but name
Figure 39: Consumers’ plans for pension fund at retirement, by consumers’ desired features of retirement income, June 2016

Consumer Attitudes towards Advice

Pension freedoms do not seem to have had the desired affect
Figure 40: Sources of advice consumer expect to use, June 2016
Free advice from Government bodies is most popular source of advice
Many conduct their own research
Figure 41: Sources of advice consumers expect to use, by awareness of pension freedoms, June 2016

Appendix – Data Sources, Abbreviations and Supporting Information

Abbreviations
Consumer research methodology

Appendix – Market Size and Forecast

Figure 42: Forecast of the total value of annuities and income drawdown sales, 2011-21
Forecast methodology

List of Table

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