Personal and Stakeholder Pensions - UK - March 2009

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