英國年金簡化及針對富裕階層年金市場： 2005 年

Introduction

Pensions Simplification, the new regulatory regime for UK pensions to be introduced in April 2006, will provide a major shake-up for the industry. Wealthy customers, with their complex financial needs, will be best positioned to take advantage of the liberated market that these changes will create. This represents a major opportunity for competitors at the top end of the UK pensions market.

Scope of this report

• Covers eight specialist pensions products aimed at wealthy UK customers: SIPPs, SSSAS, EPPs, AVCs and FSAVCs, Section 32 Transfers, UURBs and FURBs
• Offers historic data from 2000 to 2004 and forecasts to 2009
• Sizes and forecasts the market in terms of premiums (total market and those held by insurers) and assets

Research and analysis highlights

£2.4bn of gross new business premiums were paid into specialist pensions products run by insurance companies in 2004 (out of a total market of £4.1bn). Executive Pension Plans were the most important specialist pensions product for insurers followed by Section 32 Transfers.

In theory at least, following Simplification there will be only one type of pension. New style pensions will be demarcated more by their pricing, transparency, investment range and provider choice than by the product structure.

SIPPs will become a major player in the UK pensions market by 2009 with annual premiums of £4.6bn and total assets of £53bn. These products will gain large inflows of money from wealthy clients taking advantage of the Pensions Simplification regulations to invest in a broad range of assets with higher rate tax relief.

Key reasons to read this report

• Pensions for wealthy clients will be one of the fastest growing and most profitable parts of the UK financial services market in the next five years
• This report provides a vital guide as to how regulatory change will transform this market
• This report provides the most reliable sizing and forecasting of the market available

CHAPTER 1 EXECUTIVE SUMMARY

The current specialist pensions market for the wealthy

The specialist pensions market following Simplification

Product focus: Specialist pension products

CHAPTER 2 INTRODUCTION

What is this report about?

Who is the target reader?

How to use this report

MARKET CONTEXT: THE CURRENT SPECIALIST PENSIONS MARKET FOR THE WEALTHY

Introduction

Key findings

The specialist pensions market is marked by complexity and a wide range of products

There are eight major types of specialist pension product in the UK

Complex rules have shaped the specialist pensions market

The specialist pensions market is a significant element of the UK pensions landscape

£4.1bn new business premiums were paid into the specialist pensions market in 2004

Insurers gain most specialist pension premiums from EPPs and Section 32 Transfers

The specialist pensions market holds around £145bn in assets

Tax incentives have been the most important factor in the development of the specialist pensions market

Tax incentives have made the UK the largest market for private pensions investment in Europe

The lack of other tax benefits has pushed investment into pensions

Pensions are the major tax efficient vehicle for employers looking to reward their most valuable staff

Pensions are the only financial product to attract significant tax reliefon individuals income

The UK has one of the lowest levels of state pension provision in Europe, driving wealthy individuals to look for private pension cover

The tax advantages associated with pensions are particularly attractive to wealthy customers

Wealthy customers more complex pension needs have driven the creation of a range of specialist pension products

The wealthys requirement for greater control over investment and greater investment choice is key to the SIPP market

The wealthys desire to invest pension funds (or borrow against them) in assets relating to the individual has driven the SSAS market

UURBs and FURBs are designed to allow wealthy employees to make pension contributions in excess of contribution limits

The market for specialist pensions is made up of a small number of individuals with a large amount of assets

The market for specialist pensions is small in terms of individuals

HNW customers hold 39% of liquid assets in the UK.

HNWs are the section of the UK population that are showing strongest growth

Wealthy customers are financially aware and demanding

83% of eligible wealthy customers are contributing to a pension scheme

Wealthy customers do not see pensions as products to be bought or reviewed frequently

Wealthy customers are financially confident and aware

The specialist pensions market is preparing for a complete transformation on April 6 2006

The basic tenets of Pensions Simplification are indeed simple

Full concurrency

Payment limits

Lifetime allowance

Protection against the lifetime allowance

Tax free cash lump sum changes

Pension age changes

Types of pension

Preparations for Simplification are already affecting the specialist pensions market

Wealthy customers are taking advantage of a number of loop-holes pre-Simplification

The volume of Simplification legislation is confusing advisers

CHAPTER 3 THE FUTURE DECODED: THE SPECIALIST PENSIONS MARKET FOLLOWING SIMPLIFICATION

Introduction

Key findings

Quantitative forecasts: New Style SIPPs will dominate the new specialist pensions landscape after Simplification

Specialist pensions will be transformed by Simplification into "New Style" products

New Style SIPPs will become a major player in the UK pensions market by 2009 with annual premiums of £4.6bn and total assets of £53bn

SIPPs new business premiums will rocket while other specialist pensions dry up

SIPPs will make up 34% of total specialist pensions assets by 2009

Qualitative forecasts: There will be a surge in demand for pensions from wealthy customers following Simplification

Flexibility of investment, allocation, borrowing and benefits will shape the market for pensions for the wealthy after Simplification

Contributions: High lifetime allowances will attract the wealthy to invest in pensions

Allocation: Greater freedom to allocate and borrow within pension funds, particularly in residential property, will excite wealthy customers

The liberation of the pensions term assurance market will make this the most cost effective way to buy life assurance

Ancillary investments will add to the attraction of pensions

Simplification has introduced some restrictions on investment

Borrowing: The ability to borrow against pension funds will drive funding

Vesting: Vesting options will broaden greatly after Simplification

Avoiding annuities will be a key attraction to wealthier customers

The Competitive market post-Simplification will be more transparent

Cost and range of investments will be key comptetive factors after Simplification

Life companies will struggle to adapt to the unprotected specialist pensions market following Simplification

Downward pressure on prices will shape the market but profit potential will remain strong

Distribution: "complification" will continue to drive the need for in depth advice

CHAPTER 4 PRODUCT FOCUS: SPECIALIST PENSIONS

Key findings

Self Invested Personal Pensions (SIPPs): Flexible and fashionable

The structure of SIPPs is a wrapper into which a wide range of investments can be placed

SIPPs are an individual product but require trustees

SIPPs are not an insurance product

SIPPs are generally charged on the basis of the underlying assets

SIPPs offer a broad range of permissable investments

Prohibited investments

SIPP Customers are generally wealthy, however the market is broadening

The majority of SIPP customers have considerable pensions savings

Some segmentation is already emerging within the SIPP customer market

Competition - Insurance companies have lost control of the SIPP market

James Hay is by far the largest provider in the SIPP market

Datamonitor estimates the SIPP market to be worth £1.4bn in 2004

Premiums paid into SIPPs in 2004 reached £1.4bn, with the majority of this market being made up of specialist providers

Growth has been steady in the insurer SIPP market

SIPPs are set to gain in the run up to Simplification

SIPPs will be the product of choice for wealthy individuals following Simplification

SIPPs will benefit at the expense of occupational schemes following Simplification

Group SIPPs and wrap platforms will drive New Style SIPP growth

The development of Group SIPP market

SIPPs and wraps look set to grow in tandem

The market for SIPP products will reach £4.6bn in 2009

Small Self-Administered Schemes (SSAS): Still SSASy after Simplification

SSASs are the pension product where the interests of the employer and the member can be most closely aligned

There are five main types of SSAS

Interaction with the employing company is the key feature of SSASs

The administration of SSASs causes problems

The pensioner trustee system is inadequate

SSASs are aimed at those involved in the management of smaller firms

James Hay is the biggest player in the SSAS market

Datamonitor estimates that £400m was paid into SASSs in 2004

Some SSAS assets are being transferred into SIPPS

SSASs continue to have a number of structural advantages over SIPPs

SSASs will face increased competition from SIPPs post-Simplification

Datamonitor forsees moderate growth in the SSAS market

Executive Pension Plans (EPPs): Extremely Poor Prospects

EPPs are occupational money purchase schemes

Contributions into EPPs are focused on the employer

EPPs are essentially taxed as occupational pension schemes

Tax free cash is a key benefit of EPPs

EPPs appeal primarily to Senior Managers and Controlling Directors

EPPs are the pension of choice for senior managers

EPPs compete with SSASs for Controlling Directors pensions

Insurers dominate the market for EPPs

The total market for EPPs was £1.2bn in 2004

EPPs are the largest specialist pensions market for insurance companies

EPPs will gain some new business in the run up to Simplification

EPP premiums will fall below £400m per annum after Simplification

EPPs will lose new business to SIPPs and Personal Pensions post-Simplification

EPPs will see a fund drain post-Simplification

AVCs and FSAVCs: No longer concurrent?

AVCs and FSAVCs allow the topping up of occupational pensions

AVCs and FSAVCs appeal to those concerned about their pension pots

The FSAVC market is dominated by insurers

The AVC market has been inconsistent in recent years while FSAVCs have been in decline

FSAVCs have fallen 21% per annum since 2004

The total AVC new premiums were £396m in 2004

New Style AVCs will gain benefits post-Simplification, while FSAVCs will merge into the New Style personal pensions market

FSAVCs assets will see a high level of asset attrition post-Simplification, while premiums will disappear

The AVC market will be boosted by Simplification

Section 32 Transfers: going out with a bang

Section 32 Transfers allow customers to buy out their entitlement from occupational pension schemes

Customers holding Section 32 Transfers are looking for control and consolidation

The market for Section 32 Transfers has been fairly stable in recent years

Insurers hold all Section 32 Transfers

Push and pull factors are driving the market for Section 32 Tranfers prior to A Day

Concerns over closed funds are driving the market for Section 32 Transfers prior to Simplification

Insurance companies are actively seeking Section 32 funds in the run up to Simplification

Section 32 Transfers premiums will peak in 2005

Unapproved Retirement Benefit Schemes: Unnecessary after Simplification

Unnaproved Schemes allow investment in pensions beyond the approved limits but with minimal tax advantages

Unapproved schemes can be funded or unfunded

FURBs are niche products for the most highly valued employees

The FURB market is dominated by specialist providers

There are no reliable figures for sizing the FURB market

FURBs will see some boost pre-Simplification

UURBs and FURBs will disappear after Simplification

CHAPTER 5 DATA

European Comparative Tables

High Net Worth and Mass Affluent Individuals

Product take up and preferences of wealthy customers

Specialist pensions - historic market figures

Specialist pensions - current and forecast market figures

CHAPTER 6 APPENDIX

Definitions

Additional Voluntary Contributions (AVCs)

Concurrency

Controlling directors

Defined contribution pensions scheme

Defined benefits pensions scheme

Executive Pension Plans (EPPs)

High net worth (HNW)

Free Standing Additional Voluntary Contributions (FSAVCs).

Funded Unapproved Retirement Benefit Schemes (FURBs):

Mass affluent

Mass market

Self Invested Personal pensions (SIPPs)

Small Self Administered Schemes (SSAS)

Section 32 Transfers

Unfunded Unapproved Retirement Benefit Schemes (UURBs)

Vest

Research methodology

Consumer Data

Datamonitors Global Wealth Model

The UK sub model

Forecasting methodology

Datamonitors Life and Penisions Forecasting model

Historical figures

Forecasts figures

Supplementary data

Tax advantages of opening an EPP pre-Simplification for those in excess of the lifetime allowance

Details of SSAS investments pre-Simplification

Further reading

SPP writing team

List of Tables

Table 1: Proportion of salary replaced by 1st pillar pension, 2002

Table 2: James Hay holds a very large share of the SIPP market, 2005

Table 3: Key figures for SSAS providers, 2005

Table 4: Proportion of SSAS policies that were transferred into SIPPs, 2004

Table 5: Private pension assets (2nd and 3rd pillars) held in major European countries, 1998-2003e

Table 6: Private pensions per head of population, 2002

Table 7: HNW and Mass affluent individuals, 1999-2004

Table 8: HNW and Mass affluent individuals, 2004e-2009f

Table 9: Do you currently have contributions paid into any of the following pension schemes?

Table 10: Which of the following financial products do you think you might consider taking out, topping up or changing over the next five years?

Table 11: Which method would you prefer to use overall when arranging a financial product?

Table 12: To what extent do you agree or disagree with the following statements relating to your knowledge of financial services?

Table 13: Specialist pensions held by insurance companies new business single premiums 2000-2004

Table 14: Specialist pensions held by insurance companies new business regular premiums 2000-2004

Table 15: Specialist pensions total new business premiums held by insurance companies 2000-2004

Table 16: Specialist pensions new business premiums forecast, 2004-2009

Table 17: Specialist pensions assets under management forecast 2004e-2009f

List of Figures

Figure 1: Insurers gained most specialist pensions new business premiums from EPPs, 2004

Figure 2: Wealthy individuals represent a high proportion of liquid assets in the UK market, 2002

Figure 3: James Hay is comfortably the largest competitor in the SIPP market, 2004

Figure 4: SIPPs have the highest new business premiums in the specialist pensions market, 2004e

Figure 5: Insurers gained most specialist pensions new business premiums from EPPs, 2004

Figure 6: Specialist pensions hold around £145bn in liquid assets, 2004

Figure 7: Private pension assets per head of working population, 2002

Figure 8: Wealthy customers account for only 12% of the UK adult population, 2003

Figure 9: Wealthy individuals represent a high proportion of liquid assets in the UK market, 2002

Figure 10: The wealthy population is set to continue to grow rapidly, particularly at the top end, 2005

Figure 11: A high proportion of eligible wealthy customers are making contributions into their pensions, 2003

Figure 12: Investments are the financial products HNW individuals are most likely to buy or change in the next five years, 2003

Figure 13: Financial awareness is high among HNW customers, 2003

Figure 14: New premiums paid into SIPPs will come to dominate the specialist pensions market, 2004- 2009f

Figure 15: SIPP assets will grow at the expense of many other specialist pensions post-Simplification

Figure 16: 52% of SIPP providers have average fund sizes in excess of £200,000

Figure 17: James Hay is comfortably the largest competitor in the SIPP market, 2004

Figure 18: The SIPP market is dominated by single premium payments, 2000-2004

Figure 19: The SIPP market is set to go through a period of explosive growth, 2004e-2009f

Figure 20: James Hay holds a very large share of the SSAS market, 2005

Figure 21: New SSAS premiums paid to insurers are declining rapidly

Figure 22: Datamonitor believes SSASs will have a future after Simplification

Figure 23: EPP sales revived in 2004

Figure 24: The EPP market will go into decline post-Simplification

Figure 25: New business premiums into FSAVCs fell 21% per annum 2000-2004

Figure 26: AVCs peaked in 2002

Figure 27: New premiums into FSAVCs will disappear post-Simplification

Figure 28: AVC premiums will recover somewhat after Simplification

Figure 29: Section 32 Transfer premiums paid to insurance companies have averaged around 600m 2000-2004

Figure 30: The market for Section 32 Transfers will end post-Simplification

Figure 31: Unapproved schemes can provide for excess pension benefits