Annuities - UK - July 2009

Abstract

About this report

The UK’s ageing population, and the current legislative stipulation that requires most of those with a defined contribution/money purchase pension to purchase an annuity by the age of 75, should ensure that the annuity market continues to experience strong growth over the long term. The introduction of personal accounts in 2012 should also provide a substantial boost to the number of people requiring an annuity in the future. However, recent economic turbulence has created some short-term challenges for the market, including a significant fall in the value of pension funds and an increase in the number of people opting to delay their retirement.

A widespread lack of consumer awareness and understanding of annuity products and retirement income issues continues to undermine the market in terms of the gap in pension savings and may also contribute to negative consumer perceptions of the industry. At the same time, increased longevity is placing downward pressure on annuity rates. However, in recent years the annuity market has witnessed considerable innovation as providers develop more flexible annuity products in response to growing demand from the baby boomer generation and through the introduction of more sophisticated underwriting and pricing strategies. Over the last year, the industry has also taken steps to improve consumer outcomes through the increased promotion of and improvements to the open market option.

This report examines the UK annuities market, including recent developments and innovations in the market and analysis of the key players. Market size and future trends are also considered, while Mintel’s exclusively commissioned trade research explores retirement plans and expectations as well as attitudes towards annuity products.

Key issues in the market

• Demographic trends will ensure strong growth in demand for retirement income products.
• However, consumer awareness and understanding of annuities remains low.
• Increased longevity is leading to downward pressure on annuity rates, although providers are trying to mitigate this risk through more sophisticated pricing strategies.
• The ‘baby-boomer’ generation are more likely to require a flexible approach to retirement income than is offered by many conventional annuity products.
• There has been a lot of innovation in recent years, as providers try to make annuity products more attractive and engaging to consumers.
• The recession has reduced the size of many pension pots and has led some people to defer their retirement. Recent economic policy has also resulted in greater uncertainty in annuity rates.
• Increased focus on the promotion and operation of the open market option has seen the implementation of an improved transfer system by many annuity providers, which is leading to a better customer experience.
• Accessing independent advice continues to be a challenge for those with small pension pots. This is leading to the development of new direct sales channels and intermediary referral services.