Securing New Business in the UK Pensions Market - UK - February 2007

Table of Contents

• Issues in the Market
• Key issues
• Market definitions
• The State System
• The voluntary private funded sector
  • Figure 1: Types of private pension provision, UK
• Abbreviations
• Market in Brief
• At the heart of the matter
• An improving savings and investment climate
• New proposals announced to boost participation
• Competitive forces at play
• Legislative changes boost pension transfers and new sales
• Contributions are also up
• IFAs produce the lion' s share of business
• Contraction in supply
• Advertising activity boosted by rising demand
• Nearly half of all non-retired adults are saving in a pension
• Public opinion of pensions is fairly low...
• ... but there is promising support for personal accounts
• Winning over non-pension savers
• Broader Market Environment
• Key points summary:
• The ' demographic time bomb'
• Implications
• Changing work patterns
• Implications
• Economic backdrop
• Implications
• Stronger growth for savings forecast
  • Figure 2: Total PDI, consumer expenditure and savings, 2002-11
• Implications
• Recent stockmarket woes still resonate...
• Final-salary scheme closures
• Crisis in confidence
• ... although the Footsie continues on an upward path
  • Figure 3: FTSE 100 and FTSE All Share -- daily index movements, December1999-December 2006
• Broker predictions are cautiously positive
• Internal Market Environment
• Key points summary:
• Pension participation is declining, when it should be increasing
• Current private pension coverage
  • Figure 4: Participation in private pension schemes, November 2006
• Alternative arrangements
• Reasons behind lack of pension provision
• Psychological barriers
• An issue of trust
• Physical barriers
• Affordability
• Consumer apathy
• Lack of understanding
• Pensions reform
• Pensions Bill
• Second Pensions White Paper
• Personal accounts -- a new mechanism for saving
• Low charges are unworkable, say pensions industry
• Positive implications
• Employer opposition
• Complement, not compete
• Some existing schemes could move upmarket
• But others could trade down
• Pensions simplification and a new tax regime
• Implications and expectations
• Immediate effects
• Inheritance tax U-turn
• Proposals reduce the appeal of family SIPPs
• Competitive Context
• Key points summary:
• Pensions compete with a host of other financial priorities
  • Figure 5: Contextual model for private pensions -- money flows
• Pension alternatives
  • Figure 6: Retirement funding strategies
• Strong growth in second property market
• ISAs are another popular retirement saving vehicle
• Using the business to fund retirement
• Limited options for those without retirement savings
• The core challenge is one of persuasion
• Strengths and Weaknesses in the Market
  • Figure 7: The UK pensions market -- key strengths and weaknesses, 2006
• Complexity
• Increased costs
• Stakeholder pensions fail to hit the mark
• Compulsory enrolment
• The Non-Saver Target Market
• The size of the target audience for personal accounts
  • Figure 8: The size of the non-saver target market, November 2006
• Exemptions
• Trade Perspective
• About the participating companies
• How have A-Day changes impacted on new pensions business?
• Personal accounts: good or bad idea?
• Which approach is best?
• What impact will the new scheme have on existing arrangements?
• What innovations are likely over the short-term?
• Market Size and Forecast
• Key points summary:
• Employer pension contributions have increased strongly...
  • Figure 9: Contributions to private pension schemes -- UK, 2001-05
• ... but individuals need to contribute more
• New individual pensions sales storm ahead in 2006
  • Figure 10: Individual pension sales, 2001-06
• Factors behind the growth
• Record year for SIPP providers
• Moving into the mainstream
• Steady growth forecast
  • Figure 11: Forecast of individual pension sales, 2006-11
• The group single-premium sector sees impressive growth
  • Figure 12: Group pension sales, 2001-06
• Growth areas
• Single-premium group sales are set to rise further
  • Figure 13: Forecast of group pension sales, 2006-11
• Factors incorporated
• Market Share
• Key points summary:
• The changing composition of the market
• A banking offensive
• Standard Life tops the new pensions business rankings
  • Figure 14: Top ten UK pensions providers, by new premium income, 2005
• Changes to top five
• New pensions business boosted by A-Day changes
• Companies and Products
• Winning products
• SIPPs: the vehicle of choice for consolidating multiple pension funds
• Profiles of the top five largest pensions providers
• Standard Life
• Scottish Widows
• Norwich Union
• AEGON Scottish Equitable
• Friends Provident
• Brand Communication and Promotion
• Key points summary:
• The importance of branding
• Establishing a relationship with the target market
• A successful brand can help new business acquisition
• Use of consumer advertising is fairly limited...
• ...but it is on the increase
  • Figure 15: Total advertising expenditure on selected pension products, 2002-06
• Adspend is concentrated on the press
  • Figure 16: Proportional distribution of pensions adspend, by media type, 2002-06
• Scottish Widows was the leading pensions advertiser in 2006
  • Figure 17: Advertising expenditure by the top ten pensions advertisers, 2005 and 2006
• Channels to Market
• Key points summary:
• Most pension business is sold with advice
• Individual pension sales via bancassurance route more than double in 2006
  • Figure 18: Individual pensions premiums, by sales channel, 2001-06
• Bancassurance model proving successful
• Single-tie channel recovers its share of new regular premiums in 2006
  • Figure 19: Proportional distribution of individual regular-premium business, by sales channel, 2001-06
• Direct sales account for a very small proportion of new single premiums
  • Figure 20: Proportional distribution of individual single-premium business, by sales channel, 2001-06
• IFAs help drive group pension sales in 2005-06
  • Figure 21: Group pensions premiums, by sales channel, 2001-06
• IFA channel picks up share of new group regular premiums in 2006
  • Figure 22: Proportional distribution of group regular-premium business, by sales channel, 2001-06
• Direct sales continue to recede in the single-premium group sector
  • Figure 23: Proportional distribution of group single-premium business, by sales channel, 2001-06
• The Consumer -- Pension Participation
• Key points summary:
• Survey background
• Just over half of all non-retired adults are not saving in a pension
  • Figure 31: Proportion of adults contributing to a pension, by type of scheme, November 2006
• Options for leavers
• The gender divide
  • Figure 32: Proportion of adults making pension contributions, by gender, age, socio-economic group, marital status and lifestage, November 2006
• Pension participation is highest among the middle-to-high age groups
• Single people are least likely to have pension savings
• Pension participation increases up the socio-economic scale
• Working status and wealth heavily determine take-up
  • Figure 33: Proportion of adults making pension contributions, by working status, household income, tenure, region and ACORN category, November 2006
• Regional variations
• Most pension holders are saving less than £100 a month...
  • Figure 34: Pension-holders' monthly contributions, by type of pension, November 2006
• Implications
• ...but the majority say that they could contribute more
  • Figure 35: Proportion of pension holders who could afford to save more, November 2006
• Additional analysis
• The Consumer -- Attitudes and Expectations
• Key points summary:
• Coming up
• Many people are put off by ever-changing pension rules
  • Figure 36: Views on retirement and pension rules, November 2006
• Implications and opportunities
• One in four pension savers worry about how they' ll manage financially when they retire
• Implications and opportunities
• Most non-pension savers do not want to work beyond age 60/65
• Implications and opportunities
• 3 million can' t afford to retire
  • Figure 37: Cross-analysis -- views on retirement and pension rules, November 2006
• The closer people get to retirement, the more they are likely to worry
  • Figure 38: Views on retirement and pension rules, by gender, age, socio-economic group, working status, household income and region, November 2006
• Less than a third of non-retired adults believe a pension is the best way to save for retirement...
• ... while two fifths think pension income shouldn' t be taxed
  • Figure 39: Agreement with statements about pensions, November 2006
• Implications and opportunities
• Confidence lost
• Is property a better bet?
• Some support for compulsion
• Means testing -- striking the right balance
  • Figure 40: Cross-analysis -- agreement with statements about pensions, November 2006
• Opportunity to restore public faith in pensions
• Government still needs to iron out confusion over means testing
• ABs and Londoners are most pro compulsion
  • Figure 41: Agreement with postive statements about pensions, by gender, age, socio-economic group, working status, household income and region, November 2006
• More support for pensions in the South
• Few are aware of, or value, tax relief on contributions
• Women have greater confidence in pension companies than men
  • Figure 42: Agreement with negative statements about pensions, by gender, age, socio-economic group, working status and region, November 2006
• Self-employed favour property over a pension
• Two in three of those in the £35K-50K income group think that taxing pension income is unfair
• A much greater proportion like the idea of a national pension scheme than dislike it
  • Figure 43: Attitudes towards personal accounts, November 2006
• A minority of existing pension savers express interest in transferring into the new scheme
• Some are concerned about the cost implications
• Personal account typologies
  • Figure 44: Population segmented by attitudes towards personal accounts, November 2006
• Typology make-up
  • Figure 45: Attitudes towards personal accounts, by typology, November 2006
• Positive in Principle (25%)
• Conditionally Keen (23%)
• Undecided (28%)
• Cynical (24%)
• The Undecided are least likely to be saving in a pension
  • Figure 46: Pension saving profile, by typology, November 2006
• ABC1s are most likely to be Positive in Principle
  • Figure 47: Personal account typologies, by gender, age, socio-economic group, marital status and lifestage, November 2006
• Low-middle income groups have a strong tendency to be Conditionally Keen
  • Figure 48: Personal account typologies, by working status, household income, tenure, region and ACORN category, November 2006