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Workplace Pensions - UK - June 2016

Published By :

Mintel

Published Date : Jun 2016

Category :

Banking

No. of Pages : N/A

Pension providers and advisers are about to face their busiest period yet, as nearly 600,000 small and micro-sized employers reach their staging date for auto-enrolment during 2016/17 and a further 1.1 million new employers stage in 2017/18. They will need to have sufficient resources in place in order to cope with the expected sharp increase in new business.

Already, there are signs of supply issues emerging in the group pension sector, as providers struggle to meet demand. Inevitably, any capacity constraints within the group sector will benefit master trusts. This is the main competitor product to GPPs, and the main low-cost alternative for employers.

Table of Content

Overview

What you need to know
Products covered in this report
Trust-based pensions
Contract-based pensions

Executive Summary

The market
Auto-enrolment drives new premium growth
Figure 1: Forecast of new insurer-administered trust-based pension premiums – Fan chart, 2011-21
Figure 2: Forecast of new group pension premiums – Fan chart, 2011-21
Most workplace pension products are distributed by intermediaries
Employers show a strong preference for multi-employer DC schemes
Auto-enrolment ramps up
New Pensions Bill announced to strengthen protection in the master trust sector…
…and introduce a cap on early exit fees
Financial Advice Market Review offers recommendations to help close consumer advice gap
Companies and brands
Standard Life, Scottish Widows and Aviva are among the leading pension providers
Figure 3: Main participants in the workplace pension market and how they interrelate, 2016
The insurance-administered sector is heavily consolidated
There are over 70 master trusts in the UK…
…some of which have recently introduced new fees to employers
Bulk buyout market attracts new entrants
The consumer
Auto-enrolment continues to increase pension ownership
Figure 4: Proportion of employees enrolled in a workplace pension, by sector/size of employer, April 2016
Opt out rates are highest among employees of small firms
Just over a fifth of private sector workers do not know what type of pension they have
Figure 5: Type of pension enrolled in, by sector/size of employer, April 2016
Most pension holders could tolerate paying in more to their pension
Figure 6: Employee contribution rate – current rate versus maximum rate could tolerate, April 2016
Room to improve employer communications
Figure 7: Level of satisfaction with employer communications regarding pension, April 2016
Just 50% of DC pension holders know what charges apply
Figure 8: Employee understanding of key aspects of pension scheme – DC pension savers only, April 2016
Overall satisfaction level is fairly high – but there’s still room for improvement
Figure 9: Employee satisfaction with workplace pension and employer contributions, April 2016
What we think

Issues and Insights

Scope to increase employee contributions – on average by two percentage points
The facts
The implications
Help employers improve their communications with enrolled staff
The facts
The implications

The Market – What You Need to Know

Auto-enrolment drives new premium growth
Most new pension sales are generated by advisers
GPPs and master trusts are the products of choice for employers
Intensely busy period for providers and advisers ahead
Government announces new Pensions Bill

Market Size and Forecast – Trust-based Schemes

TIPs and bulk buyouts account for most new trust-based business…
…however the data excludes some notable master trust business
Figure 10: New insurer-administered trust-based pension business (volume and value), 2011-15
Slower growth forecast
Figure 11: Forecast of new insurer-administered trust-based pension premiums – Fan chart, 2011-21
Figure 12: Forecast of new insurer-administered trust-based pension business, 2016-21
Forecast methodology

Market Size and Forecast – Contract-based Pensions

New group pension sales have grown strongly over the past five years
Figure 13: New group pension business (volume and value), 2011-15
Premium income is predicted to rise strongly over the next few years, before experiencing a slowdown from 2020
Figure 14: Forecast of new group pension premiums – Fan chart, 2011-21
Figure 15: Forecast of new group pension business, 2016-21
Forecast methodology

Channels to Market

The workplace pension market is heavily intermediated…
Figure 16: Proportional distribution of new regular-premium insurer-administered trust-based and group pension business, by sales channel, 2014-15
…although a significant proportion of trust-based premiums are generated through direct channels
Figure 17: Proportional distribution of total new single-premium insurer-administered trust-based and group pension business, by sales channel, 2014-15
Types of intermediary and their role in the pension market

Trends in Workplace Pension Ownership

Auto-enrolment has boosted pension participation in the workplace
Figure 18: Proportion of employees with workplace pensions, 1997-2015
Growth is being driven by the DC sector
Figure 19: Breakdown of employees with workplace pensions, by sector and type of pension, 2015

Market Drivers

Auto-enrolment has dramatically increased the size of DC pension pool
Figure 20: Number of insurer-administered occupational pension scheme members and group pension policies in force, 2010-14
Most employers are using DC master trusts and group pensions to meet new duties
Figure 21: Pension scheme types and number of auto-enrolled eligible jobholders declared by employers, as at 31 March 2015
6.2 million workers had been auto-enrolled by April 2016
Figure 22: Declarations of compliance, April 2016
Opt-out rates increase as smaller firms stage
Intensely busy period ahead for pension providers and advisers
Figure 23: Staging profile – number of employers subject to full duties, 2014/15-2017/18

Regulatory and Legislative Changes

As auto-enrolment ramps up, insurance providers struggle to meet demand
Master trusts help fill the supply gap, raising concerns about a lack of consumer protection in the sector
New Pensions Bill will address concerns…
…and introduce a cap on early exit fees
New pension freedoms prompt need for greater consumer access to advice

Companies and Brands – What You Need to Know

Standard Life, Scottish Widows and Aviva are the leading pension providers
The insurance-administered sector is heavily consolidated
There are more than 70 master trusts in the UK…
…some of which have introduced new fees to employers
Bulk buyout market attracts new entrants

Market Structure and Key Players

Employer duties
Pension supply and administration
Figure 24: Main participants in the workplace pension market and how they interrelate, 2016
Investment management
The rise of master trusts

Provider Rankings & Market Share

Just over half of all insurance-administered trust-based premiums in 2014 were generated by five providers…
Figure 25: Rankings of top 20 providers of insurance-administered trust-based occupational pension business, by gross premiums, 2014
…the individual and group contract-based business is even more consolidated
Figure 26: Rankings of top 20 providers of insurance-administered individual and group contract-based pension business, by gross premiums, 2014

Competitive Strategies

De-risking market developments
Continued growth in bulk buyout market as more employers look to reduce pension liabilities…
Figure 27: In-force bulk buyout business, 2011-14
…prompting more insurers to enter
Product news
Providers take pre-emptive action and reduce or remove early exit fees
Two of the largest master trusts introduce fees for smaller employers
Technological innovation
Helping pension savers understand their choices at retirement
Aviva unveils 10-minute ‘quote and apply’ system for corporate advisers

Advertising and Marketing Activity

Providers spend very little on above-the-line consumer advertising channels
Figure 28: Total above-the line, online display and direct mail advertising expenditure on pension products and advice, 2011/12-2015/16
Most pension adspend relates to TV and press advertising
Figure 29: Distribution of above-the line, online display and direct mail advertising expenditure on pension products and advice, by media type, 2011/12-2015/16
Providers make increasing use of social media to reach target audience
Government agencies represent nearly half the sector’s adspend
Figure 30: Top 15 above-the line, online display and direct mail advertisers of pension products and advice, 2014/15-2015/16
Nielsen Ad Intel coverage

The Consumer – What You Need to Know

Auto-enrolment continues to increase pension ownership
Opt out rates are highest among employees of small firms
Just over a fifth of private sector workers do not know what type of pension they have
Most pension holders could tolerate paying in more to their pension
Room to improve employer communications
Just 50% of DC pension holders know what charges apply

Size and Sector of Employer

22% of employees work for small private-sector firms
Figure 31: Sector and size of employer worked for, April 2016
A small proportion of employees work for two or more different types of employer
Many small businesses are expected to impose pay cuts and freezes

Pension Enrolment

Two thirds of employees are enrolled in a workplace pension
Figure 32: Proportion of employees enrolled in a workplace pension, by sector/size of employer, April 2016
Opt-out rates are noticeably higher among employees of small and medium-sized firms
Auto-enrolment is helping to close the gender gap

Type of Workplace Pension

A large proportion of private-sector workers are confused about what type of pension they have
Figure 33: Type of pension enrolled in, by sector/size of employer, April 2016

Employee Contribution Rate

Most workplace pension savers are contributing more than the current minimum
Figure 34: Employee contribution rate, April 2016
Possible confusion over percentage of gross pay versus qualifying earnings
Nearly one in four workplace pension holders are contributing less than 4%
A significant minority do not know what level they are contributing
Figure 35: Employee contribution rate, by type of pension, April 2016
Average contribution rate is broadly the same for private sector employees whether they work for a small, medium or large firm
Figure 36: Employee contribution rate, by sector/size of employer, April 2016
The average workplace pension saver could tolerate their contribution rate increasing by no more than two percentage points
Figure 37: Employee contribution rate – current rate versus maximum rate could tolerate, April 2016
Only a very small proportion of existing DC pension savers say they could not stomach their contribution rate rising to 4%

Satisfaction with Employer Communications

15% of workplace pension holders rate their employer communications as ‘poor’ or ‘very poor’
Figure 38: Level of satisfaction with employer communications regarding pension, by sector/size of employer, April 2016
57% of workplace pension holders have access to a helpline…
Figure 39: Employee access to pension advice and to pension scheme online, April 2016
…and 40% can make changes to their pension online
Employees value having good access to pensions information and advice
Figure 40: Employee access to pension advice and to pension scheme online, by level of satisfaction with employer communications, April 2016

Level of Understanding and Overall Satisfaction with Scheme

Significant scope to improve consumer education
Figure 41: Employee understanding of key aspects of pension scheme, April 2016
Just half of all DC pension savers know what charges and fees they are paying
Figure 42: Employee understanding of key aspects of pension scheme, April 2016
Around one in seven are dissatisfied with their workplace pension
Figure 43: Employee satisfaction with workplace pension and employer contributions, April 2016

Appendix – Data Sources, Abbreviations and Supporting Information

Framework for workplace pensions
Figure 44: Framework for workplace pensions – Private sector, 2016
Occupational schemes
Contract-based workplace pensions
Scheme type
Defined-benefit (salary-related) schemes
Defined-contribution (money-purchase) schemes
Other relevant definitions
Abbreviations
Consumer research methodology

Appendix – Market Size and Forecast

Trust-based sector forecast – best- and worst-case scenarios
Figure 45: Forecast of new insurer-administered trust-based pension premiums – best- and worst-case scenarios, at current prices, 2016-21
Contract-based sector forecast – best- and worst-case scenarios
Figure 46: Forecast of new group pension business – best- and worst-case scenarios, at current prices, 2016-21
Forecast Methodology

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