Group Personal Pensions - UK - December 2007

Abstract

The whole pensions sector continues to be an area of long-term focus and huge change. The UK has a rapidly deteriorating prognosis for the provision of income in retirement for an ageing population. It is clear the state cannot provide a ‘living' income in retirement for its population. The so-called ‘second pillar' of good occupational provision has been eroded over the last ten years by a combination of poor investment returns, ever-increasing costs, a more demanding and rigorous legal, governance and regulatory burden and changes in the nature of the relationship between employers and employees. The third pillar - individual saving for retirement - has become increasingly important but due to means testing and interaction of saving for a pension with entitlement to state benefits, it has yet to become the main focus of the sector.

Between the second and third pillars lies a ‘hybrid' series of products that might loosely be described as grouped individual arrangements. These are contract-based arrangements that are individual in nature but, through aggregation, are able to benefit from some of the economies of scale that might previously have applied only to occupation schemes. This group includes stakeholder pensions (SHPs), group personal pensions (GPPs) and group self-invested personal pensions (SIPPs). These products cover the needs of the whole demographic spectrum of the working population in the UK but at the margins they compete with each other.

They also compete with defined contribution money purchase schemes - employers have a choice as to which they will offer or facilitate. From 2012, a new competitor - in the form of the National Pension Saving Scheme (NPSS, also known as ‘personal accounts' ) - will enter the fray as a default option for employers who have no other scheme in place. Unless employees make a deliberate decision to opt out of this scheme, they will be automatically enrolled.

It seems that GPPs are under pressure from all sides - stakeholders and the NPSS on the one hand and group SIPPs (GSIPPs) and occupational arrangements on the other. Yet in the last 2-3 years the GPP market has flourished. This report focuses on the role of GPPs and trends in the market. It looks at the competitive environment and examines trends in the segmentation of the market between the different grouped arrangements available.