Abstract
After several years of solid growth the personal pension market, along with most of the financial services industry, has experienced a slowdown in 2008. Naturally, the current economic environment is a major contributing factor to the recent slowdown. Many people are focusing on more immediate issues such as paying down debt or preparing for the prospect of unemployment, rather than saving for retirement. Other more persistent issues, however, such as negative publicity, frequent regulatory changes, as well as consumer apathy or a preference for alternative investments, have also been holding the market back.
On the other hand, although near term prospects remain challenging, longer term economic and demographic trends are much more favourable for the personal pension industry. The UK population is ageing rapidly and considerable improvements in longevity mean that people will increasingly be spending more time in retirement. Furthermore, just as people are finding they will need to save more money to ensure a comfortable retirement, there has been a progressive decline in both state and occupational pension provision. As a result, more of the burden of saving for retirement has been placed on the individuals themselves - which means demand for personal pension products should rise over the long term.
This report presents an overview of the key issues facing the individual personal pension market in the UK. In addition to examining the wider economic, demographic and regulatory environment, the report details the value of new business and takes a look at the competitive landscape. The report also highlights market strengths and weaknesses and identifies potential market opportunities and threats. The final section of the report presents the findings of Mintel' s exclusive consumer research survey. Here the reader is provided with valuable insight into the attitudes and behaviours of UK consumers towards personal pensions.
Key issues
- Difficult economic conditions have hurt demand for individual pension products in the past year.
- Lack of affordability, as well as unawareness, apathy and distrust of pension' s industry are additional factors currently holding the market back.
- Some consumers prefer to save for retirement outside of a pension.
- The launch of Personal Accounts in 2012 poses a competitive threat at the lower end of the market.
- Products such as SIPPs are difficult for consumers to understand and only appeal to a narrow slice of the population.
- The RDR as well as the TCF initiative are likely to have an impact on future pension product design and could make selling personal pensions more difficult in the near term.
- Longer term demographic and social trends are encouraging (i.e. a gradually older and more affluent population, declining occupational and state pension provision, increased job mobility).
Table of Contents
- Issues in the Market
- Key issues
- Market background and definitions
- Pension based retirement planning
- Figure 1: Types of private pension provision in the UK
- Occupational schemes
- Individual pensions
- Group pensions
- Benefit structures
- Alternatively secured pensions
- Other definitions
- A-day
- Abbreviations
- Market in Brief
- New business down in 2008
- Figure 2: New APE* individual pension premiums, by product type, 2003-08
- Demographic and economic drivers
- Intended financial activity levels favourable to pensions business
- Figure 3: Intended life and pensions activity, Q3/Q4 2002-Q4 200/Q1 2009
- Internal market environment
- Most new personal pension business generated through IFAs
- Figure 4: New APE* premiums into individual pensions, by type of pension
and distribution channel, 2008
- Lloyds (Scottish Widows) tops market share table
- Key consumer research findings
- Pension product ownership
- Value and length of pension contributions
- Attitudes towards saving in a pension
- Internal Market Environment
- Key points
- The decline of occupational pension provision...
- Figure 5: Status of private and public sector schemes, 2007
- ... means more people will need to arrange their own pension
- Personal Accounts set to arrive in 2012...
- ... with a number of potential effects
- Affordability holds back many from investing in a pension
- Figure 6: Reasons for not saving, June 2008
- Indifference also holding the market back
- Psychological barriers also exist
- Past mis-steps have also discouraged greater pension uptake
- FSA alleges that thousands may have been given wrong pension advice
- Difficult-to-understand products make getting advice essential
- Regulatory developments
- The Retail Distribution Review
- Clarity of services -- independent advice vs sales advice
- Customer agreed remuneration (CAR)
- Raising professional standards for advisers
- Treating Customers Fairly initiative
- Industry reaction to TCF
- Money Guidance service -- for generic advice
- Protected rights funds now eligible for full SIPP investment
- Broader Market Environment
- Key points
- Improvements in longevity mean longer retirements
- Figure 7: Cohort life expectancy at age 60, by gender, 1981-2054
- More retirement years but less money to fund them
- Figure 8: Average gross weekly income of pensioner units*, by age,
2006/07
- Old age dependency ratio will continue to rise
- Figure 9: Projected size of the UK population, by age band, 2008-46
- Over 8 out of 10 people above 50 still saving for retirement
- An increasing number of people will be working beyond retirement age
- Figure 10: UK Economic activity, by gender and age, 2002-10
- Increased job mobility and lifestyle changes
- Saving likely to be difficult for many in the near term
- Poor stock market performance hurting confidence in pension saving
- Inflationary pressure on pensions return and retirement income
- Consumer Context
- Key points
- Saving and investment intentions on the rise
- Figure 11: Savings, investment, borrowing and debt repayment --
consumers' expected activity, December 2007-December 2008
- Over-65s to significantly increase financial activity levels
- Figure 12: Expected financial activity, by socio-demographic and income
groups, December 2008 and average for the last 27 quarters
- Prospects for life and pension products improving
- Figure 13: Intended life and pensions* activity, Q3/Q4 2002-Q4 200/Q1
2009
- Low equity investor sentiment
- Figure 14: Intended purchases of shares and equity-based unit trusts,
government and corporate bonds and bond-based unit trusts and sales of
equities and unit trusts, Q3/Q4 2002-Q4/Q1 2009
- Figure 15: Intended cash-based activities, Q3/Q4 2002-Q4/Q1 2009
- Competitive Context
- Key points
- Consumers have many options when saving for retirement
- Figure 16: Summary of retirement funding strategies
- Workplace pension products are the direct competitors
- Traditional occupational pension provision in decline
- Figure 17: Number of private sector occupational pension schemes in the
UK, by scheme size, 2002-07
- Group pension and company stakeholder business has been brisk
- Figure 18: New GPP and company-sponsored stakeholder pension premiums,
2003-08
- Personal accounts a competitive threat
- Non-pension alternatives
- Strengths and Weaknesses in the Market
- Figure 19: Market for individual personal pensions -- SWOT analysis, 2009
- Market Size and Forecast
- Key points
- New business suffers in 2008
- Figure 20: New individual pension premiums, by product type, 2003-08
- New SIPP and GPP business has been driving the market forward
- Lacklustre growth in existing business
- Figure 21: Total number of policies and regular premiums from individual
pensions business in force, by pension type, 2003-07
- Market forecast
- Prospects challenging over the near term
- Figure 22: Forecast of new APE* premiums into individual personal
pensions**, 2003-13
- But there is some hope over the longer term
- Factors used in the forecast
- Market Share
- Key points
- Lloyds takes top spot and AEGON falls out of the top five
- Figure 23: Ranking of individual pension providers, based on UK gross
written premium, 2006 and 2007
- Acquisitions have moved Swiss Re and Deutsche Bank up the table
- Top occupational pension providers also active in personal pensions
- Companies and Products
- Key individual pension product providers
- Scottish Widows (Lloyds Banking Group)
- Aviva plc (formerly Norwich Union)
- Standard Life
- AXA (AXA Life)
- AEGON (Scottish Equitable)
- Key players in retail banking advice market
- Barclays Financial Planning
- Lloyds Banking Group plc/Scottish Widows
- Brand Communication and Promotion
- Key points
- Pensions-related adspend up 41% over the past year
- Figure 37: Pensions category advertising expenditure, by sub-category,
year to December 2004-08
- Top ten provider adspend reaches a five-year high
- Figure 38: Advertising expenditure by the top ten pensions advertisers,
year to December 2004-08
- TV makes up 40% of total advertising adspend in 2008
- Figure 39: Overview of media type used to advertise pensions-related
products, year to December 2007-08
- Channels to Market
- Key points
- Most new personal pension business driven by IFAs
- EBCs are active in group pension sales
- In 2008 four in five new individual pensions sales are via IFAs
- Figure 40: New APE* premiums into individual pensions, by distribution
channel, 2003-08
- Individual pension distribution -- Detailed breakdown
- Tied agents have gained a greater share of personal pensions business
- Figure 41: Proportional distribution of new APE* premiums into personal
pensions, by distribution channel, 2003-08
- IFAs play a key role in GPP distribution
- Figure 42: Proportional distribution of new APE* premiums into GPPs, by
distribution channel, 2003-08
- Bancassurance plays a key role in individual stakeholder distribution
- Figure 43: Proportional distribution of new APE* premiums into
individual stakeholder pensions, by distribution channel, 2003-08
- Most company-sponsored stakeholder pensions sold through IFAs
- Figure 44: Proportional distribution of new APE* premiums into company
sponsored stakeholder pensions, by distribution channel, 2003-08
- IFAs generated 89% of new SIPP business in 2008
- Figure 45: Proportional distribution of new APE* premiums into SIPPs, by
distribution channel, 2003-08
- The Consumer -- Pension Product Ownership
- Key points
- One in seven saving in an personal pension
- Figure 46: Ownership of pension products, by type, January 2009
- Multiple pension ownership = opportunity for consolidation
- Figure 47: Ownership of pension products and retirement savings --
cross-analysis, January 2009
- Personal pension ownership peaks at the third age lifestage
- Figure 48: Type of pension owned, by gender, age, lifestage and marital
status, January 2009
- Personal pension ownership skewed toward the affluent
- Figure 49: Type of pension owned, by socio-economic group, working
status, gross annual household income, TV region and household tenure,
January 2009
- Opportunity to move supplemental savings into a pension
- Pension ownership and media and technology usage
- Figure 50: Type of pension owned. by daily newspaper readership,
technology usage, internet usage frequency and web usage, January 2009
- The Consumer -- Value and Length of Pension Contributions
- Key points
- Over one in seven paying in £300 or more into a personal pension
- Figure 51: Monthly pension contributions, by type of pension, January
2009
- Value of contributions tend to rise with age
- Figure 52: Monthly pension contributions by gender, age, lifestage and
marital status, January 2009
- As expected wealthy contribute most to pension pots
- Figure 53: Monthly pension contributions by socio-economic group,
working status, gross annual household income, TV region and household
tenure, January 2009
- 44% of those with a mortgage contributing £100 a month or more
- Media and technology usage and pension contribution levels
- Figure 54: Monthly pension contributions by daily newspaper readership,
technology usage, internet usage frequency and web usage, January 2009
- A case for online pensions?
- 58% of personal pension holders contributing for over ten years
- Figure 55: Number of years making pension contributions, by type of
pension, January 2009
- Contributing more and for longer
- Figure 56: Number of years making pension contributions, by value of
contributions, January 2009
- Some have left pension savings dangerously late
- Figure 57: Number of years making pension contributions, by age, January
2009
- Affluent have been contributing the longest
- Figure 58: Number of years making pension contributions, by gross annual
household income, January 2009
- Appendix -- The Consumer: Value and Length of Pension Contributions
- Figure 72: Number of years making pension contributions, by gender, age,
lifestage and marital status, January 2009
- Figure 73: Number of years making pension contributions by
socio-economic group, working status, gross annual household income, TV
region and household tenure, January 2009
- Figure 74: Number of years making pension contributions by daily
newspaper readership, technology usage, internet usage frequency and web
usage, January 2009
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