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Alternative Retirement Strategies - UK - September 2010

This report investigates the potential role of a select group of savings products in the retirement planning process. These include ISAs, collective investment funds and investment bonds, as well as property related alternatives, equity release and buy-to-let property.

  • Although nearly a quarter of the non-retired population over the age of 18 openly question the value of pensions, only a minority of the population is likely to be saving for retirement exclusively using alternatives. For the majority of people pensions are the foundation of the overall retirement strategy.
  • According to consumer product ownership data, pension ownership is actually a good thing for the alternative retirement savings market. Non-retired adults who have a pension are considerably more likely than those without one to own an alternative retirement savings product (12% vs. 49%).
  • Mintel’s focus groups showed surprisingly strong resistance to the idea of being allowed early access to retirement savings for specific life events. Many felt that it defeated the object of saving in a pension.
  • Despite the introduction of government policies designed to encourage people to work longer, people will continue to aspire to an early retirement. Providers should be demonstrating the valuable role alternative retirement savings products can play in helping to make this goal a reality.
  • The growing of number of individuals planning to take a phased approach to retirement will boost demand for more flexible non-pension products which can help provide an income as one scales back their working hours.
  • The planned pullback in pension contribution tax-relief for high-earners from April 2011 shows how susceptible to government meddling pension savings can be. Providers of non-pension alternatives can emphasise this when promoting the advantages of their products.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Fauxthenticity
            • Many Mes
            • Market in Brief

              • Household sector wealth fell sharply to £6.4 trillion in 2009
                • Close to a quarter of the population in the prime target market
                  • Figure 1: Savings and investment products owned by key alternative retirement savings target group, June 2010
                • Alternative retirement savings and investment overview
                  • Economic conditions remain challenging
                    • Increasing longevity should motivate people to save more
                      • Consumer apathy holds back growth in demand
                        • Tight credit environment holding back property related alternatives
                          • New government quick to shake up regulatory environment
                            • Most alternatives sold with advice
                              • Adspend on alternative retirement products has declined
                                • Competitive context – pensions market
                                  • Key consumer findings
                                    • Ownership of alternative retirement savings products
                                      • Retirement expectations
                                        • Attitudes towards retirement and retirement planning
                                        • Internal Market Environment

                                          • Key points
                                            • Decline in pension provision needs to be made up via private savings
                                              • Consumer unawareness and apathy hold back the market
                                                • Proposals to bring ISA and pension market closer together
                                                  • Consumer resistance to the concept of early access to retirement funds
                                                    • CGT rises to 28% for high earners
                                                      • Pension tax relief claw back for high earners from April 2011…
                                                        • …opening up opportunities for non-pension alternatives
                                                          • Official state pension set to progressively rise
                                                            • Default retirement age to be abolished
                                                              • Further momentum for a phased approach to retirement
                                                                • ISA limits to rise in line with RPI
                                                                  • More people entering retirement with debt
                                                                    • BTL yields creep back up but obtaining a mortgage still difficult
                                                                      • Figure 2: The annual rate of return on BTL (geared investment and cash purchase), Q1 2006-Q4 2009
                                                                    • Downturn pushes some equity release firms out of the market
                                                                    • Broader Market Environment

                                                                      • Key points
                                                                        • Difficult and slow economic recovery ahead
                                                                          • Figure 3: Total GDP, at current prices, 2006-13
                                                                        • Financial crisis has led to an increased focus on saving (debt repayment)
                                                                          • Alternative retirement savings products attractive in current environment
                                                                            • More savings will be required to fund longer lifespans
                                                                              • Figure 4: Cohort life expectancy at age 60, by gender, 1981-2056
                                                                            • More individuals are already working past the official retirement age
                                                                              • Figure 5: Breakdown in gross pensioner income (weekly average at 2008-09 prices), 1996-97-2008-09
                                                                            • Ability to work will be viewed as an asset
                                                                              • Stock market performance has improved but remains touchy
                                                                                • Figure 6: FTSE 100 and FTSE All Share – daily index movements, August 2004-August 2010
                                                                              • Protecting savings from inflationary pressures and tax hikes
                                                                                • Figure 7: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, August 2007-August 2010
                                                                              • House prices continue to stagnate
                                                                                • Figure 8: Average UK house prices, January 2002-June 2009 (monthly data, seasonally adjusted)
                                                                            • Competitive Context – Pensions Market

                                                                              • Key points
                                                                                • Alternative retirement savings products compete with pensions for funds
                                                                                  • Overall contributions into pensions declined by 17% in 2009
                                                                                    • Figure 9: Total new premiums paid into individual and occupational pensions, 2005-09
                                                                                  • SIPPs a versatile competitor
                                                                                    • Availability and quality of workplace pension provision has deteriorated
                                                                                      • Figure 10: Size of the defined-contribution pension pool, 1998-2008 
                                                                                    • Contributory pension participation will increase with NEST
                                                                                    • SWOT Analysis

                                                                                        • Figure 11: Alternative retirement strategies – SWOT analysis, 2010
                                                                                    • Market Size – Key Alternative Retirement Savings Target Group

                                                                                      • Key points
                                                                                        • Nearly a quarter of the population are looking for alternatives
                                                                                          • Figure 12: Savings and investment products owned by key alternative retirement savings target group, June 2010
                                                                                      • Market Size – Household Wealth

                                                                                        • Key points
                                                                                          • Household sector wealth fell 15% to £6.4 trillion in 2009
                                                                                            • Figure 13: Net worth of the household sector, 2000-09
                                                                                        • Alternative Retirement Savings and Investment Overview

                                                                                          • Key points
                                                                                            • Value of ISA contributions rises by 12% in 2009/10
                                                                                              • Figure 14: Value of ISA sales, by type of ISA, 2004/05-2009/10
                                                                                            • Some similarities between ISAs and pensions
                                                                                              • New retail collective investment fund sales rise sharply in 2009
                                                                                                • Figure 15: Retail sales of unit trusts and OEICs – UK-domiciled, 2005-09
                                                                                              • Investment bond new premiums nearly halve in 2009
                                                                                                • Figure 16: Total number of new single-premium investment bond contracts and value of total new premiums, 2005-09
                                                                                              • Property based alternatives
                                                                                                • Buy-to-let gross advances down by over two thirds in 2009
                                                                                                  • Figure 17: New buy-to-let mortgage business, 2003-09
                                                                                                • Equity release sales have levelled off, but potential remains
                                                                                                  • Figure 18: Total value of equity release sales by SHIP members, 1999-2009
                                                                                              • Brand Communication and Promotion

                                                                                                • Key points
                                                                                                  • Adspend on most pension alternatives has declined in 2010
                                                                                                    • Figure 19: Retirement planning-related advertising expenditure, by sub-category, 2008-10
                                                                                                  • Diverse group of financial firms advertising in the market
                                                                                                    • Figure 20: Retirement planning-related advertising expenditure, top 20 companies, 2008-10
                                                                                                  • 60% of advertising done through specialist press
                                                                                                    • Figure 21: Retirement planning-related advertising expenditure, by media type, 2008-10
                                                                                                • Channels to Market

                                                                                                  • Key points
                                                                                                    • Most alternative retirement savings products sold via intermediaries
                                                                                                      • Figure 22: Trends for main sources of financial advice used, 2009 and 2010
                                                                                                    • Fund supermarkets enable self-management by retail investors
                                                                                                    • Consumer Ownership of Alternative Retirement Savings Products

                                                                                                      • Key points
                                                                                                        • Overall product ownership highest among pension owners
                                                                                                          • Figure 23: Savings and investment products owned, June 2010
                                                                                                        • Alternative retirement savings likely just one element of a wider strategy
                                                                                                          • Figure 24: Cross-analysis of select financial products owned, June 2010
                                                                                                        • The role of one’s main property in a retirement strategy
                                                                                                          • A quarter of non-retired adults own only one savings or investment product
                                                                                                            • Figure 25: Repertoire of savings and investment products owned, June 2010
                                                                                                          • People who own only one or two products unlikely to invest in non-pension alternatives
                                                                                                            • Figure 26: Savings and investment products owned, by repertoire of savings and investment products owned, June 2010
                                                                                                          • Alternative retirement savings ownership doubles after age 35
                                                                                                            • Figure 27: Ownership of non-pension based savings and investment products, by gender, age and lifestage, June 2010
                                                                                                          • Wealthy driving the alternative retirement savings market
                                                                                                            • Figure 28: Ownership of non-pension based savings and investment products, by socio-economic status, working status, gross annual household income, housing tenure and newspaper readership, June 2010
                                                                                                        • Consumer Attitudes towards Retirement and Retirement Planning

                                                                                                          • Key points
                                                                                                            • Close to a fifth say there are better ways to save for retirement than a pension
                                                                                                              • Figure 29: Attitudes towards retirement planning, June 2010
                                                                                                            • More could start to realise that saving in a pension alone is not enough
                                                                                                              • Figure 30: Attitudes towards retirement planning, by ownership of select savings and investment products, June 2010
                                                                                                            • Those closest to retirement age facing up to retirement reality
                                                                                                              • Figure 31: Attitudes towards retirement planning, by gender and age, June 2010
                                                                                                            • Affluent express doubts over pensions and most open to alternatives
                                                                                                              • Figure 32: Attitudes towards retirement planning, by socio-economic group, June 2010
                                                                                                              • Figure 33: Attitudes towards retirement planning, by gross annual household income, June 2010
                                                                                                          • Consumer Retirement Expectations

                                                                                                            • Key points
                                                                                                              • Owners of pension alternatives more confident of retirement prospects
                                                                                                                • Figure 34: Confidence that personal savings will provide a comfortable retirement, June 2010
                                                                                                              • Confidence in retirement prospects positively linked with number of products owned
                                                                                                                • Figure 35: Confidence that personal savings will provide a comfortable retirement, by repertoire of savings and investment products owned, June 2010
                                                                                                              • Many leaving retirement savings too late
                                                                                                                • Figure 36: Confidence that personal savings will provide a comfortable retirement, by gender, age, lifestage, marital status and region, June 2010
                                                                                                              • Confidence rises with affluence and outright homeownership
                                                                                                                • Figure 37: Confidence that personal savings will provide a comfortable retirement, by socio-economic group, working status, household income and tenure, June 2010
                                                                                                              • Media usage and confidence in retirement savings
                                                                                                                • Figure 38: Confidence that personal savings will provide a comfortable retirement, by media usage, June 2010
                                                                                                              • Years to retirement
                                                                                                                • Two fifths of those 10-20 years from retirement own pension alternatives
                                                                                                                  • Figure 39: Savings and investment products owned, by years till retirement/scaling back working hours, June 2010
                                                                                                                • Many still expect to retire at around the state pension age
                                                                                                                  • Figure 40: Years until retirement or the scaling back of working hours, by age, June 2010
                                                                                                                • Early retirement will continue to be an aspiration
                                                                                                                  • Phased retirement likely to become more commonplace
                                                                                                                  • Further Consumer Analysis – Targeting Opportunities

                                                                                                                    • Key points
                                                                                                                      • Key target groups
                                                                                                                        • Figure 41: Key alternative retirment savings target groups, June 2010
                                                                                                                      • Carefree
                                                                                                                        • My Property
                                                                                                                          • Open to alternatives
                                                                                                                            • Target groups and ownership of pensions and pension alternatives
                                                                                                                              • Figure 42: Ownership of select savings and investment products, by target groups, June 2010
                                                                                                                            • My Property group most confident of a comfortable retirement
                                                                                                                              • Figure 43: Confidence that personal savings will provide a comfortable retirement, by target groups, June 2010
                                                                                                                            • Over half in the My Property group 20+ years away from retiring
                                                                                                                              • Figure 44: Years till retirement/scaling back working hours, by target groups, June 2010
                                                                                                                            • Target groups and desired features of retirement savings products
                                                                                                                              • Figure 45: Most important features of retirement saving products, by target groups, June 2010
                                                                                                                          • Appendix – Broader Market Environment

                                                                                                                              • Figure 46: Total PDI, consumer expenditure and savings, at current and constant 2010 prices, 2006-13
                                                                                                                              • Figure 47: Projected size of the UK population, by age band, 2010-58
                                                                                                                              • Figure 48: UK economic activity, by gender and age, 2005-15
                                                                                                                          • Appendix – Competitive Context – Pensions Market

                                                                                                                              • Figure 49: New individual pension premiums, by product type, 2005-09
                                                                                                                          • Appendix – Market Size: Alternative Retirement Savings and Investment Overview

                                                                                                                              • Figure 50: Number of ISA accounts and amounts subscribed, segmented by type, 1999/2000-2009/10
                                                                                                                          • Appendix – Channels to Market

                                                                                                                              • Figure 51: Gross retail sales of unit trust and OEIC ISAs, by distribution channel, 2005-09
                                                                                                                          • Appendix – Consumer Ownership of Alternative Retirement Savings Products

                                                                                                                              • Figure 52: Ownership of select long-term savings and investment products, by demographics, June 2010
                                                                                                                          • Appendix – Consumer Attitudes towards Retirement and Retirement Planning

                                                                                                                              • Figure 53: Attitudes towards retirement planning, by demographics, June 2010
                                                                                                                              • Figure 54: Attitudes towards retirement planning, by demographics (continued), June 2010
                                                                                                                          • Appendix – Further Consumer Analysis – Targeting Opportunities

                                                                                                                              • Figure 55: Attitudes towards retirement planning, by target groups, June 2010
                                                                                                                              • Figure 56: Target groups, by demographics, June 2010
                                                                                                                              • Figure 57: Repertoire of savings and investment products owned, by demographics, June 2010
                                                                                                                              • Figure 58: Most important features of retirement saving products, by demographics, June 2010
                                                                                                                              • Figure 59: Next most important features of retirement saving products, by demographics, June 2010
                                                                                                                              • Figure 60: Other important features of retirement saving products, by demographics, June 2010

                                                                                                                          Companies Covered

                                                                                                                          • Asda Group Ltd
                                                                                                                          • Association of British Insurers
                                                                                                                          • Association of Residential Letting Agents
                                                                                                                          • Aviva Plc
                                                                                                                          • Bank of England
                                                                                                                          • Barclays Bank plc
                                                                                                                          • Citizens Advice Bureau
                                                                                                                          • Co-operative Group
                                                                                                                          • Council of Mortgage Lenders
                                                                                                                          • Financial Services Authority (The)
                                                                                                                          • Government Actuary's Department (GAD)
                                                                                                                          • Hargreaves Lansdown Plc
                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                          • Investment Management Association
                                                                                                                          • Jupiter Unit Trust Managers Ltd
                                                                                                                          • Northern Rock plc
                                                                                                                          • Office for National Statistics
                                                                                                                          • Scottish Widows Bank plc

                                                                                                                          Alternative Retirement Strategies - UK - September 2010

                                                                                                                          £1,995.00 (Excl.Tax)