Report: Annuities - UK - July 2009 TOC

Issues in the Market
Key issues in the market
Abbreviations
Market in Brief
Annuity sales continue on an upward trend
- Figure 1: New pension annuity business -- number of new contracts and the value of new premiums, 2003-09
Conventional annuities are beginning to lose ground
Market drivers should ensure growth over the long term
Economic downturn leads to increased uncertainty in annuity market
Prudential remains the leading annuity provider
- Figure 2: Top five providers' share of the UK annuity market, by new business (APE), 2008
Small pension pots drive product and distribution developments
- Figure 3: Proportional distribution of annuities sold, by fund size, 2008
Direct annuity sales set to grow
- Figure 4: Proportional distribution of new pension annuity premiums, by sales channel, 2004-08
Key consumer findings
Pension product ownership
Retirement plans and expectations
- Figure 5: When planning to retire, June 2009
Attitudes towards annuities
- Figure 6: Attitudes towards annuities/retirement income, June 2009
Internal Market Environment
Key points
Individual pension policies increase...
- Figure 7: Size of the defined-contribution pension pool, 1997, 2002 and 2007
... but membership of DC schemes is shrinking
A large proportion of consumers remain disengaged with pensions
- Figure 8: Attitudes towards pension based-savings, January 2009
Personal accounts will boost the market over the long-term
Uncertainty over annuity rates
- Figure 9: Annual annuity rates and gilt rates, January 1990-June 2009
OMO continues to create headlines
- Figure 10: External versus internal volume sales of new pension annuities -- proportional distribution, 2000-08
Industry take positive action to develop the OMO
Regulatory and legislative developments
RDR
FSA comparative tables
Broader Market Environment
Key points
Ageing population boosts annuity market
- Figure 11: UK adult population data and dependency ratios, 2009-56
Increased life expectancy propels ageing population...
- Figure 12: Cohort life expectancy at age 65, by gender, 1985-2055
... and drives innovation in the annuities market
Pensioner income data reveal change in approach to retirement
- Figure 13: Breakdown in gross pensioner income (weekly average at constant prices, 2007-08), 1994-95-2007-08
Inflationary trends -- good and bad news for annuitants
- Figure 14: Average annual changes in the Bank of England base rate, CPI and RPI -- UK, 2000-09
Share prices experiences a turbulent year
- Figure 15: FTSE 100 and FTSE All Share indices -- daily index movements, June 2000-May 2009
Gilt yields fluctuate due to economic policy
- Figure 16: Historical monthly medium, long and ultra long gilt yields, January 2000-March 2009
Competitive Context
Key points
Annuities protected by legislation...
... but a significant number have alternative retirement strategies
- Figure 17: Overview of potential retirment income solutions, June 2009
Equity release provides a different approach to retirement income...
- Figure 18: Total value of equity release sales by SHIP members, 1991-2009
...but is it losing its appeal?
Strengths and Weaknesses in the Market
- Figure 19: UK annuity market, SWOT analysis, 2009
Market Size and Forecast
Key points
Annuity sales continue to rise
- Figure 20: New pension annuity business -- number of new contracts and the value of new premiums, 2003-09
Annuity payments increase as market expands
- Figure 21: Pension annuity business in force -- payments per annum, 1997-2008
Pension annuity market forecast
- Figure 22: New pension annuity business -- number of new contracts and the value of new premiums, 2003-14
Almost 40% of annuities sold are for less than £10,000
- Figure 23: Proportional distribution of annuities sold, by fund size, 2008
Larger pension funds increase since A-day
- Figure 24: Number of annuities sold, by size of fund, 2004-08
Factors used in this forecast
Market Segment Performance
Key points
Annuity market is shifting away from conventional annuities
- Figure 25: Breakdown of pension annuitiy sales (volume and value), by main product type, 2008 and 2004
Enhanced annuity sales continue to increase
- Figure 26: Number of new enhanced/impaired life annuity contracts and as percentage of total annuties sold, 2003-08
Enhanced annuities -- becoming a mainstream product?
Third-way sales reach £1 billion in 2008...
... but market turbulence hits variable annuity sector
Income Drawdown Overview
Key points
Sidestepping the annuity
Income drawdown sales decline in 2008
- Figure 27: Income drawdown new business, 2004-08
Average income drawdown fund size falls
- Figure 28: Average pension annuity versus income drawdown premiums, 2004-08
IFAs likely to be scrutinised as income drawdown funds decline
- Figure 29: New income drawdown premiums, by sales channel, 2004-08
Market Share
Key points
Prudential holds 21% of the UK annuity market
- Figure 30: Top five providers' share of the UK annuity market, by new business (APE), 2008
Some movement within top 15 rankings
- Figure 31: Top 15 providers in the UK annuity market, by new business (APE), 2008
Companies and Products
Major players
Prudential
Aviva
AEGON
Legal & General
Brand Communication and Promotion
Key points
Annuity adspend declines by 40% in 2008
- Figure 32: Total adspend on annuities and income drawdown, 2006-08
Intermediary annuity adspend grows strongly
- Figure 33: Overview of annuity adspend, 2006-08
Enhanced annuity provider tops advertisers in 2008
- Figure 34: Top annuity adverstiers, 2006-08
Press advertising dominates
- Figure 35: Adspend by media type, 2006-08
Channels to Market
Key points
Direct sales increase...
- Figure 36: Proportional distribution of new pension annuity premiums, by sales channel, 2004-08
...although IFAs continue to dominate annuity sales
- Figure 37: New pension annuity premiums, by sales channel, 2004-08
IFA community faces challenges
The Consumer -- Pension Ownership
Key points
Pension savings gap is clear
- Figure 38: Financial products owned, June 2009
Balance shifting in the pension market
- Figure 39: Proportion of pension holders with a DB scheme, DC scheme or unknown scheme, June 2009
Major gap in pension savings among the under 35s
- Figure 40: Pension product ownership, by age group, June 2009
Pension ownership closely aligned to affluence
- Figure 41: Pension product ownership, by socio-economic group and gross annual household income, June 2009
Groups for consumer analysis
Annuity targets more likely to be third age, AB and male
- Figure 42: Potential retirement strategies (product owership), by demographics, June 2009
Many annuity targets have additional sources of retirement income
- Figure 43: Cross analysis of financial products owned, June 2009
The Consumer -- Retirement Plans and Expectations
Key points
Most people expect to retire at state pension age
- Figure 44: When planning to retire, June 2009
Retirement reality kicks in after people reach 55
- Figure 45: When planning to retire, by demographics June 2009
Some 23% of annuity targets expect to retire before state pension age
- Figure 46: When planned to retire, by financial products owned, June 2009
Mixed expectations of standard of living during retirement
- Figure 47: Financial expectations at retirement, June 2009
Retirement expectations alter with age
- Figure 48: Financial expectations at retirement, by demographics, June 2009
A quarter of annuity targets expect a comfortable retirement
- Figure 49: Financial expectations at retirement, by financial products owned. June 2009
Retirement plans and expectations are generally aligned
- Figure 50: When planned to retire, by financial expectations at retirement, June 2009
Appendix -- Product Background and Definitions
Common product types
Single or joint life
Cash lump sum
Open market option
Alternatives
Pensions simplification and income drawdown
Alternatively secured pensions
Pension products
Appendix -- Internal Market Environment
Retail Distribution Review
Splitting sales and advice
- Figure 63: Proposed regulatory landscape, 2012
From commission to fees
Possible extension to non-investment markets
Appendix -- The Consumer -- Product Ownership
- Figure 64: Potential retirement strategies (product owership), by demographics, June 2009
Appendix -- The Consumer -- Retirement Plans and Expectations
- Figure 65: When planned to retire, by demographics, June 2009
- Figure 66: Financial expectations at retirement, by demographics, June 2009
- Figure 67: Financial expectations at retirement (continued), by demographics, June 2009

Annuities - UK - July 2009

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