Retirement Income Solutions - UK - August 2017

Retirement Income Solutions - UK - August 2017

Aug 2017 Mintel BankingN/A Price :
$ 2584

Despite fears that abolishing compulsory annuitisation would sound a death knell to a market already facing major challenges, Mintel’s research shows that there is still a core group of DC pension savers who are keen on considering an annuity as part of their retirement plans.

Table of contents

OVERVIEW
What you need to know
Products covered in this Report
EXECUTIVE SUMMARY
The market
Drawdown sales soar while demand for annuities continues to fall
Figure 1: Forecast of new retirement income sales – fan chart, 2012-22
Retirement income products are more likely to attract those with larger pots
Figure 2: Number of DC pension pots accessed for the first time, split by usage, 2015 Q4-2016 Q3
Greater demand for annuities with a guarantee period
Those taking advice are more likely to buy on the open market
Growth in non-advised drawdown sales
Long-term decline in annuity rates
Plans for a second-hand annuity market aborted
Companies and brands
Low levels of competition in the annuity market
Many providers have left the open market or withdrawn altogether
Providers are shifting focus onto drawdown and hybrid solutions
Reduced innovation since pension freedoms introduced
The consumer
Pension ownership
Figure 3: Ownership of single and multiple pension pots, by gender and age, June 2017
More than half of those aged 55+ have already accessed their pension savings
21% of under-65s plan to access their pension early…
Figure 4: When DC pension holders expect to access their pension (under-65s only), June 2017
…although the actual timing will be influenced by a range of factors
Figure 5: Factors most likely to influence when pension holders access their pension, June 2017
35% would consider withdrawing the full amount
Figure 6: Decumulation options likely to consider, June 2017
66% are confused about their options
Figure 7: Agreement with statements about retirement options, June 2017
55% are worried about making the wrong decision
Figure 8: Concerns regarding pension options at retirement, June 2017
50% are interested in the new pension advice allowance
Figure 9: Awareness of and interest in pension advice allowance, June 2017
What we think
ISSUES AND INSIGHTS
The new popular trend to fully withdrawing pots is the biggest threat to the retirement income market
The facts
The implications
Are blended solutions the way forward?
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Retirees showing much greater preference for drawdown than annuities
Those with larger value pots are more inclined to buy a retirement income product
More annuities being bought with a guarantee period
Those taking advice are more likely to buy on the open market
Mix of factors driving down annuity rates
Plans for a second-hand annuity market abandoned
MARKET SIZE AND FORECAST
Drawdown sales now far outnumber those of annuity
Figure 10: Volume of new annuity and income drawdown sales, 2012-16
Income drawdown continues to grow its share of total retirement income premiums
Figure 11: Value of new annuity and income drawdown premiums, 2013-16
Sales forecast
Figure 12: Forecast of new retirement income sales – fan chart, 2012-22
Figure 13: Forecast of new retirement income sales, 2012-22
Forecast methodology
PENSION POTS ACCESSED
Full cash withdrawal is the most popular option…
Figure 14: Number of DC pension pots accessed for the first time, by usage, 2015 Q4- 2016 Q3
…especially among those with pots under £10,000
Figure 15: Proportion distribution of customers by pot size and usage, 2016 Q2 and 2016 Q3 combined
Drawdown has become more popular – including among those with smaller pots
First-time annuity customers have an older age profile than those entering drawdown
Figure 16: Proportion distribution of customers by age and usage, 2016 Q2 and 2016 Q3 combined
At least £11 billion withdrawn from pensions since freedom reforms were introduced
Figure 17: Flexible payments from pensions, 2015 Q2-2017 Q1
ANNUITY MARKET SEGMENTATION
Enhanced annuities account for a third of sales
Greater proportion of annuities now sold with a guarantee period
Figure 18: Annuity sales by product type, 2015-16
CHANNELS TO MARKET
More than half of all annuity and drawdown sales are internal
Figure 19: Breakdown of annuity and income drawdown sales by internal and external, 2014-16
Around three quarters of annuities are sold without advice
Figure 20: Number of new annuity sales, by channel, 2014-16
Large increase in non-advised sales of drawdown
Figure 22: Number of new drawdown sales, by channel, 2014-16
Intermediary definitions
MARKET DRIVERS
Around 22 million DC pensions in force at the end of 2015
Figure 24: Number of individual and group pensions in-force and number of occupational DC members, 2003-15
8 million workers have so far been auto-enrolled
Ultra-low annuity rates are encouraging more retirees to enter drawdown
More choice increases the need for consumer education
Greater provider interest in blended solutions, but not all have got the model right
Rising demand for fixed-term annuities
REGULATORY AND LEGISLATIVE CHANGES
FCA’s Retirement Outcomes Review interim report – accessing pension pots early has “become the norm”
Annuity providers must prompt customers to shop around
DWP decides against letting NEST enter the drawdown market
Government aborts plans to introduce a second-hand annuity market
1% charge cap on early exit fees comes into force
Three separate advisory bodies to merge into one service
Treasury introduces ‘multiple uses’ pension advice allowance
Prototype of Pensions Dashboard goes live
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
Low levels of competition in the annuity market
Many providers have left the open market or withdrawn altogether
Shifting focus onto drawdown and hybrid solutions
Limited innovation since pension freedoms introduced
KEY PLAYERS AND MARKET MOVERS
More than 50 firms supply retirement income products
Largest annuity providers
Recent sales performance
Figure 25: New annuity business, by the largest providers, 2016
Contraction in supply of annuities on the open market
Many more companies active in the drawdown market
COMPETITIVE STRATEGIES AND INNOVATION
Providers switch focus to retirement accounts and drawdown products
Prudential launches Retirement Account
New hybrid products are experiencing varying levels of success
Royal London introduces new tools to help drawdown customers
Phoenix launches compulsory annuity comparison service
Digital innovation
New tools to educate pension savers about their retirement options
Royal London launches a new pension Review Service
THE CONSUMER – WHAT YOU NEED TO KNOW
Auto-enrolment has substantially boosted the number of pension savers
A fifth plan to access their pension early
Greater interest in annuities than drawdown among those yet to retire
79% of DC pension savers want their pot to last their entire retirement…
…while 36% are worried they might be tempted to withdraw and spend their savings too early
50% are interested in using the new pension advice allowance
PENSION OWNERSHIP AND ACCESS
84% of full-time employees have a pension
Having multiple pension pots is fairly common
Figure 26: Ownership of single and multiple pension pots, June 2017
More respondents say they have a DB than a DC pension
Figure 27: type of pension owned, by number of pension pots, June 2017
DC pension savers are even more likely to have multiple pots
Figure 28: Proportion of pension savers with a single pot versus two or more pots, by type of pension, June 2017
Many of those aged 55+ have already accessed their pension savings
Figure 29: Proportion of DC pension-holders aged 55+ who have accessed pension pot, June 2017
AGE EXPECTING TO ACCESS PENSION AND INFLUENCING FACTORS
Figure 30: When DC pension holders expect to access their pension (under-65s only), June 2017
A fifth intend to access their pot before state pension age…
…and nearly half say the timing will be dependent on their health…
…although a mix of factors will come into play
Figure 31: Factors most likely to influence when pension holders access their pension, June 2017
DECUMULATION OPTIONS LIKELY TO CONSIDER
Interest in annuities is greater than drawdown
Figure 32: Decumulation options likely to consider, June 2017
35% of DC pension holders would consider withdrawing the full amount
ATTITUDES AND EXPECTATIONS ABOUT PENSION OPTIONS
Only half of all DC pension holders are likely to seek retirement advice
Figure 33: Agreement with statements about retirement options, June 2017
Strong interest in options that suit a phased retirement approach
CONSUMER CONCERNS
Top concern is not having saved enough for a comfortable retirement
Figure 34: Concerns regarding pension options at retirement, June 2017
55% worry about making the wrong decision
31% are concerned that they don’t know where to go for advice
AWARENESS OF AND INTEREST IN PENSION ADVICE ALLOWANCE
Figure 35: Awareness and interest in pension advice allowance, June 2017
APPENDIX – DATA SOURCES AND ABBREVIATIONS
Data sources
Consumer research methodology
Abbreviations
APPENDIX – MARKET SIZE AND FORECAST
Total market forecast – best- and worst-case scenarios
Figure 36: Forecast of total retirement income sales – best- and worst-case scenarios, 2017-22
Annuity sector forecast – volume
Figure 37: Forecast of new annuity sales – fan chart, 2012-22
Figure 38: Forecast of of new annuity sales – best- and worst-case scenarios, 2017-22
Annuity sector forecast – value
Figure 39: Forecast of new annuity premiums – fan chart, 2012-22
Figure 40: Forecast of new annuity premiums – best- and worst-case scenarios, 2017-22
Drawdown sector forecast – volume
Figure 41: Forecast of new drawdown sales – fan chart, 2012-22
Figure 42: Forecast of drawdown sales – best- and worst-case scenarios, 2017-22
Forecast methodology

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