Pension Options for More Affluent Individuals - UK - July 2007

Table of Contents

• Issues in the Market
• Key issues
• Market background
• Market definitions
• The State System
• The voluntary private funded sector
  • Figure 1: Types of private pension provision, UK
• Abbreviations
• Market in Brief
• A growing market for affluent pensions
• Environment positive for increased retirement savings activity
• Many barriers must be overcome to take advantage of benign savings environment
• More affluent consumers have a range of savings of which pensions are just a part
• Apparent growth in pensions business to some extent illusory
• Consolidation in the pensions industry continues and mainstream companies enter the previously niche SIPP sector
• Advisors, dealing services and fund managers lead pensions and related advertising activity
• Advisors dominate pensions distribution and increasing need for advice consolidates their position
• Control and flexibility are the main requirements for more affluent individuals
• But there are issues to be addressed
• Employers and/or IFAs dominate methods of pension arrangement
• Broader Market Environment
• Key points summary
• Population ageing is the main factor in pension development
• Implications
• Economic backdrop
• Implications
• Growing affluence allows scope for increasing savings activity
  • Figure 2: Total PDI, consumer expenditure and savings, 2002-11
• Implications
• Growth in the AB population is a likely consequence
  • Figure 3: Number of indiivuals in the AB socio-economic group, 2005-10
• Implications and opportunities
• Changing work patterns
• Implications
• Crisis of confidence in traditional pensions
• Implications and opportunities
• Internal Market Environment
• Key points summary
• A hugely valuable market
  • Figure 4: The 2007 distribution of liquid financial asset wealth within the wealthiest 5% in the UK
• Generally male, generally employed
  • Figure 5: The occupations of HNWs & UHNWs: Britain' s wealth elite, 2005 and 2007
• A growing need for income generation
  • Figure 6: The household incomes of HNWs and UHNWs, 2007
• Present pension coverage
• Current private pension coverage
  • Figure 7: Participation in private pension schemes, November 2006
• Alternative arrangements
• Pensions reform
• Complement, not compete
• Existing schemes to shift focus to the more affluent?
• Little chance that high-earners will see schemes ' levelled down'
• Pensions simplification and a new tax regime
• Implications and expectations
• Immediate effects
• Tax planning a key concern for more affluent individuals...
• ...and sophisticated alternative takes centre-stage
• Film partnerships
• Enterprise Initiative Scheme
• Venture Capital Trusts
• EIS, ISAs, VCTs and pensions -- the benefits summarised
  • Figure 8: UK tax-efficient investments comparison
• But pensions still have major advantages
• Competitive Context
• Key points summary
• A more complex and exciting environment for retirement income planning
  • Figure 9: Contextual model for private pensions -- money flows
• Pension alternatives
  • Figure 10: Retirement funding strategies
• Strong growth in second property market
• ISAs are another popular retirement saving vehicle
• Life insurance products
• Film partnerships, EIS and VCTs
  • Figure 11: Total cost of principal tax expenditures, 2005-07
• Using the business to fund retirement
• Buy-to-let presents a serious threat
  • Figure 12: Number and value of buy-to-let mortgages outstanding, 1999-2006 (year-end)
• Strengths and Weaknesses in the Market
  • Figure 13: The UK affluent pensions market -- key strengths and weaknesses, 2007
• Perceptions of pensions are a major issue
• Complexity and inflexibility
• Increased costs
• More flexible arrangements for more affluent individuals
• The role of the advisor
• Market Size and Forecast
• Key points summary
• ABI data describe only part of the picture
• Need to bridge fund deficits prompts rise in employer pension contributions
  • Figure 14: Contributions to private pension schemes -- UK, 2001-05
• Employee contributions remain sluggish
• New individual pensions sales grow strongly in 2006
  • Figure 15: Individual pension sales, 2001-06
• Factors behind the growth
• Record year for SIPP providers
  • Figure 16: SIPP sales, 2002-06
• Moving into the mainstream
• The SIPP base grows prolifically
• Hybrid SIPPs gain market share...
• ...but commodity SIPPs see the most rapid growth
• Value of executive pension plan market recovers
  • Figure 17: Executive pension plan sales, 2002-06
• Steady growth forecast
  • Figure 18: Forecast of individual pension sales, 2006-11
• Factors incorporated
• Market Share
• Key points summary
• The changing composition of the market
• James Hay is the dominant SIPP provider by funds under management...
  • Figure 19: Leading SIPP providers according to in force business, April 2007
• ...but share differs according to market segment
  • Figure 20: Leading providers of insured SIPPs by number of plans in force, April 2007
  • Figure 21: Leading providers of fully self-invested plans by number of plans in force, April 2007
• Companies and Products
• Key points summary
• Premium pension product ranges
• Market dynamics
• SIPPs: the vehicle of choice for consolidating multiple pension funds
• Mainstream providers having a greater impact...
  • Figure 22: Average SIPP portfolio size among leading providers, April 2007
• ...but clear signs of stratification
  • Figure 23: Average SIPP portfolio of ' exclusive' SIPP providers, April 2007
• Profiles of selected leading SIPP providers
• James Hay
• Standard Life
• AEGON Scottish Equitable
• Suffolk Life
• Brand Communication and Promotion
• Key points summary
• An explosion in media advertising of retirement income options...
• ...but spend has fallen back in recent years
  • Figure 24: Media advertising for products and services that could be used in retirement planning, 2002-07
• Advertising expenditure on pensions has stabilised
  • Figure 25: Main media advertising expenditure on pensions, 2002-07
• Press and direct mail dominate advertising spend
  • Figure 26: Leading advertisers of pensions and pension services, 2006-07
• Formal marketing channels less relevant for more affluent individuals
• Channels to Market
• Key points summary
• Independent Financial Advisors are the key channel for retirement planning
• Intermediated business the norm
• IFAs dominate both regular and single premium sales
  • Figure 27: 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 28: Proportional distribution of individual regular-premium business, by sales channel, 2001-06
• Minimal direct sales of single premium business
  • Figure 29: Proportional distribution of individual single-premium business, by sales channel, 2001-06
• HNW Investment Priorities
• Key points summary
• Steering a course between two extremes
• A measured increase in risk-taking?
  • Figure 37: Attitudes towards risk among HNW & UHNW individuals, 2005 and 2007
• Satisfaction with pensions is relatively high...
  • Figure 38: Pension satisfaction levels, 2005
• ...but other sources of income in retirement are increasingly important
  • Figure 39: The components of retirement income, by value, 2005
• Highlighting the importance of property investments
  • Figure 40: The contribution of non-pension assets to affluent retirement incomes, 2005
• HNWs and UHNWs favour traditional investment vehicles
  • Figure 41: HNW and UHNW asset allocations 2005 and 2007
  • Figure 42: The five fastest growing allocations, 2005-07
• HNWs and advisors -- symbiotic relationships
  • Figure 43: The use and non-use of professional investment advisors, 2005 and 2007
• IFAs still the key source of advice
  • Figure 44: Sources of investment advice by HNW and UHNW individuals, 2005-07
• The impact of advisors on investment selection...
  • Figure 45: Asset allocations 2007: The advised portfolio v the un-advised portfolio
• ...and the impact of trust on advisor selection
  • Figure 46: The most trusted advisors, 2007
• The Consumer -- Appealing Features of Pensions and Relative Affluence
• Key points summary
• Survey background
• Taking control is a key preference...
• ...as well as a natural reaction to external events
• SIPPs the obvious answer
  • Figure 47: Preference for pension features, February 2007
• Disillusionment is increasing
  • Figure 48: Preference for pension features, 2006 and 2007
• Implications and opportunities
• More affluent individuals want more involvement
  • Figure 49: Preference for pension features, by gender, age, socio-economic group and marital status, February 2007
• Implications and opportunities
• Lifestage and age/socio-economic cross-analysis emphasise the preferences of more affluent consumers
  • Figure 50: Preference for pension features, by lifestage, age/socio-economic group, working status and TV region, February 2007
• Implications and opportunities
• Technology users have strong views
  • Figure 51: Preference for pension features, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, February 2007
• Charges and tax efficiency -- key for affluent customers
  • Figure 52: Preference for pension features among more affluent individuals, February 2007
• Implications and opportunities
• Almost three in ten consumers who are in work and have considered pensions claim not to have any
  • Figure 53: Statements regarding more affluent individuals, February 2007
• Implications and opportunities
• Age and affluence associated with asset ownership
  • Figure 54: Statements regarding more affluent individuals, by gender, age, socio-economic group and lifestage, February 2007
• Implications and opportunities
• Further analysis confirms the role of older, more affluent consumers
  • Figure 55: Statements regarding more affluent individuals, by age/socio-economic group, working status, TV region and ACORN category, February 2007
• Internet usage, broadsheet readership and low TV viewing characterise owners of pensions, larger properties and long term investments
  • Figure 56: Statements regarding more affluent individuals, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, February 2007
• Longer horizons for the more affluent
  • Figure 57: Asset ownership among the more affluent, February 2007
• SIPPs making serious inroads -- with potential for more growth
• Implications and opportunities
• Pension ownership is a strong predictor of preference for control and flexibility in pension products...
  • Figure 58: Preference for pension features, by pension ownership, February 2007
• ...but personal pension holders looking for the ' safety net' of advice
• Implications and opportunities
• The Consumer -- Arrangement Preferences
• Key points summary
• Three quarters of pensions arranged through employer or IFA
  • Figure 59: Method of pension arrangement, February 2007
• Experienced consumers prefer employer or IFA, younger consumers use bank or building society
  • Figure 60: Method of pension arrangement, by gender, age, socio-economic group and lifestage, February 2007
• Employer dominates arrangement methods for more affluent consumers
  • Figure 61: Method of pension arrangement, by age/socio-economic group, gross annual household income, TV region and ACORN category, February 2007
• Technology usage is not a predictor of method of arrangement -- unlike newspaper readership
  • Figure 62: Method of pension arrangement, by new technology users, newspaper readership, commercial TV viewing and supermarket usage, February 2007
• Individuals with personal pensions use a wide range of arrangement channels
  • Figure 63: Method of pension arrangement, by pension ownership, February 2007
• Implications and opportunities
• Affluent individuals much more likely to source own IFA
  • Figure 64: Method of arranging pensions among the more affluent, February 2007
• Implications and opportunities