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Alternative Retirement Strategies - UK - September 2011

There are a diverse range of reasons that people opt to save outside a pension for their retirement. The major barriers to saving in a pension are seen as risk and complexity but other factors include a desire for greater flexibility and the ability to get a better return elsewhere. Alternative retirement strategies tend to be used to supplement rather than replace pensions, which after all offer a highly tax-efficient approach to retirement planning. However, a major reduction in the annual allowance for pension tax relief from April 2011 will increase the number of high-net-worth (HNW) individuals forced to find alternative strategies to save for retirement.

This report provides an overview of the market for alternative retirement strategies. It considers the main economic, demographic and legislative issues affecting the overall market for retirement planning. Market sizes and recent trends in the key alternative retirement strategy sectors are examined; these include ISAs, collective investments, investment bonds and buy-to-let. Mintel’s consumer research looks at the ownership of various retirement-related saving and investment products, as well as broad retirement planning expectations. The reasons behind people’s choice to save for retirement outside a pension are also considered, as are the main features sought from retirement saving products.

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • One in four non-retirees have alternative retirement savings
              • Figure 1: Pension and investment product ownership, June 2011
            • Alternative retirement products allow retirement planning diversity
              • Pensions account for 40% of household wealth
                • Figure 2: Breakdown of aggregate wealth, by components, Great Britain, 2006/08
              • Market factors
                • Retirement planning is becoming more important
                  • Regulatory and legislative issues
                    • Pension market continues to struggle
                      • Alternative retirement savings overview
                        • The consumer
                          • A mixed approach to retirement planning
                            • Figure 3: Retirement planning expectations, June 2011
                          • Risk and complexity are main barriers to saving in a pension
                            • Figure 4: Attitudes towards saving for retirement and pensions, June 2011
                          • Security is the most important aspect of retirement savings
                            • Figure 5: Features sought in retirement saving products, June 2011
                          • What we think
                          • Issues in the Market

                              • What motivates people to save for their retirement outside a pension?
                                • To what extent do alternative retirement savings compete with pensions?
                                  • Why are people turning to alternative retirement savings vehicles?
                                    • Can alternative retirement products help to bridge the gap in retirement savings?
                                      • What do people look for from retirement saving products?
                                      • Future Opportunities

                                        • Developing a stepping stone retirement saving product
                                          • Alternative retirement strategies support demand for diversity
                                          • Internal Market Environment

                                            • Key points
                                              • The £9 trillion retirement savings gap
                                                • A lack of confidence in pensions
                                                  • Alternative retirement strategies needed to bridge the gap
                                                    • Proportion of people saving in a pension remains fairly consistent
                                                      • Figure 6: Intended life, pensions and ISA activity, Q3/Q4 2002-Q2/Q3 2011
                                                    • Investor sentiment remains highly fragile
                                                      • Figure 7: Intended purchases of shares and equity-based unit trusts, government and corporate bonds and bond-based unit trusts*, sales of equities and unit trusts and FTSE 100**, Q3/Q4 2002-Q2/Q4 2011
                                                    • Regulation and legislative changes
                                                      • Long-term savings market in flux
                                                        • New accounting rules for pension schemes
                                                          • Compulsion to purchase an annuity is removed
                                                            • Auto-enrolment to increase pension participation
                                                              • Attempts to simplify the state pension
                                                                • Changes in taxation influence demand for alternative retirement products
                                                                  • The RDR could reduce access to retirement planning advice
                                                                  • Broader Market Environment

                                                                    • Key points
                                                                      • Increased life expectancy places greater focus on retirement planning
                                                                        • Figure 8: Cohort life expectancy at age 60, by gender, 1981-2058
                                                                      • A growing number of pensioners are working into retirement
                                                                        • Figure 9: Breakdown in gross pensioner income (weekly average at 2009/10 prices), 1996/97-2009/10
                                                                      • Inflationary pressure reduces the appeal of cash-based savings
                                                                        • Figure 10: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, August 2007-June 2011
                                                                      • Stockmarket volatility undermines investor confidence
                                                                        • Figure 11: FTSE 100 and FTSE All Share – daily index movements, August 2004-July 2011
                                                                      • Sluggish housing market weakens demand for property investment
                                                                        • Figure 12: Average UK house prices, January 2002-June 2011 (monthly data, seasonally adjusted)
                                                                    • Competitive Context – Pensions Market

                                                                      • Key points
                                                                        • Pensions dominate the retirement planning market
                                                                          • Transfer business pushes up new pension premiums in 2010
                                                                            • Figure 13: New pension business, premiums (regular and single) paid into individual and occupational pensions, 2006-10
                                                                          • Individual pensions buoyed by GPP and SIPP sales
                                                                            • Occupational pension sales boosted by transfer business…
                                                                              • …but occupational pension participation continues to decline
                                                                                • Figure 14: Number of active private sector occupational scheme members – UK, 1991-2009
                                                                              • Pensions market will be boosted by introduction of auto-enrolment
                                                                              • SWOT Analysis

                                                                                  • Figure 15: Alternative retirement strategies – SWOT analysis, August 2011
                                                                              • Household Wealth Overview

                                                                                • Key points
                                                                                  • More than a third have less than £1,000 in assets
                                                                                    • Figure 16: Value of investible assets, March 2011
                                                                                  • Pensions account for 39% of household wealth
                                                                                    • Figure 17: Breakdown of aggregate wealth, by components, Great Britain, 2006/08
                                                                                  • Pensions dominate the savings landscape for people nearing retirement
                                                                                    • Figure 18: Breakdown of aggregate saving (net) where household head is aged 50-64, by components, 2006/08
                                                                                  • Impact of the financial crisis
                                                                                  • Alternative Retirement Savings and Investment Overview

                                                                                    • Key points
                                                                                      • Investment-based alternatives
                                                                                        • ISA sales boosted by increase in subscription limit
                                                                                          • Figure 19: Value of ISA sales, by type of ISA, 2005/06-2010/11
                                                                                        • Pros and cons of saving for retirement in an ISA
                                                                                          • Possibility of linking ISAs and pensions
                                                                                            • Workplace ISAs are starting to gain some traction
                                                                                              • Collective investment sales rebound but uncertainty remains
                                                                                                • Figure 20: Retail sales of unit trusts and OEICs – UK-domiciled, 2005-10
                                                                                              • Offshore bonds provide option to defer tax
                                                                                                • Figure 21: Size of the onshore versus UK-distributed offshore investment bond market, by new premiums, 2005-10
                                                                                              • Pension reforms increase demand for VCTs
                                                                                                • Property-based alternatives
                                                                                                  • Some signs of recovery in BTL market
                                                                                                    • Figure 22: New buy-to-let mortgage business, 2001-10
                                                                                                  • Equity release struggling but poised for recovery
                                                                                                    • Figure 23: Volume and value of new equity release plan sales, 2005-10
                                                                                                • Brand Communication and Promotion

                                                                                                  • Key points
                                                                                                    • Adspend on retirement planning strategies declines in 2010/11
                                                                                                      • Figure 24: Adspend on pension products and potential alternative retirement strategies, 2008/09-2010/11
                                                                                                    • A mixed picture for alternative retirement planning adspend
                                                                                                      • Figure 25: Adspend on potential alternative retirement strategies, 2008/09-2010/11
                                                                                                    • Top advertisers offer a range of alternative retirement products
                                                                                                      • Figure 26: Top ten advertisers of potential alternative retirement strategies, 2008/09-2010/11
                                                                                                    • Press and direct mail account for the majority of adspend
                                                                                                      • Figure 27: Adspend on potential retirement strategies, by media type, 2008/09-2010/11
                                                                                                    • A note on adspend
                                                                                                    • Ownership of Alternative Retirement Saving and Investment Products

                                                                                                      • Key points
                                                                                                        • One in four have a potential alternative retirement plan
                                                                                                          • Figure 28: Pension and investment product ownership, June 2011
                                                                                                        • Pension holders are more likely to have alternative retirement savings
                                                                                                          • Scope to expand the role of cash-based savings in retirement savings
                                                                                                            • Figure 29: Reasons for saving or investing, 2011
                                                                                                          • Alternative retirement savings peak among 55-64-year-olds
                                                                                                            • Figure 30: Pension and alternative retirement saving ownership, by age, June 2011
                                                                                                          • Men are more likely to take a proactive approach to retirement planning
                                                                                                            • Almost 50% of higher earners have alternative retirement savings
                                                                                                              • Figure 31: Pension and alternative retirement saving ownership, by household income, June 2011
                                                                                                            • Non-retirees lack diversity in saving and investment ownership
                                                                                                              • Figure 32: Repertoire of pension and investment product ownership, June 2011
                                                                                                            • Alternative retirement savings form part of a diverse retirement strategy
                                                                                                              • Figure 33: Pension and investment product ownership, by repertoire of pension and investment product ownership, June 2011
                                                                                                          • Retirement Planning Expectations

                                                                                                            • Key points
                                                                                                              • Only a third of people expect to retire at the state pension age
                                                                                                                • Figure 34: Retirement planning expectations, June 2011
                                                                                                              • Opportunities to offer retirement planning advice
                                                                                                                • Figure 35: Retirement planning expectations, by age, June 2011
                                                                                                              • Pension savings reduce retirement planning uncertainty
                                                                                                                • Figure 36: Retirement planning expectations, June 2011
                                                                                                              • Phased retirements could boost demand for alternative retirement products
                                                                                                                • Alternative retirement savings increase the prospect of an early retirement
                                                                                                                  • Figure 37: Pension and investment product ownership, by retirement planning expectations, June 2011
                                                                                                              • Attitudes Towards Saving in a Pension

                                                                                                                • Key points
                                                                                                                  • Pension-holders more aware than most of the potential downsides
                                                                                                                    • Figure 38: Attitudes towards saving for retirement and pensions, June 2011
                                                                                                                  • Only a minority expect to rely on the state in retirement
                                                                                                                    • Alternative retirement savers have confidence in non-pension savings
                                                                                                                      • Figure 39: Attitudes towards saving for retirement and pensions, by pension and investment product ownership, June 2011
                                                                                                                    • Middle age and middle income groups are most concerned about pension risk
                                                                                                                      • Figure 40: Most popular attitudes towards saving for retirement and pensions, by selected demographics, June 2011
                                                                                                                    • Almost one in four expecting to work beyond SPA are concerned about pension risks
                                                                                                                      • Figure 41: Attitudes towards saving for retirement and pensions, by retirement planning expectations, June 2011
                                                                                                                  • Attitudes Towards Saving for Retirement

                                                                                                                    • Key points
                                                                                                                      • Security is the most important feature for retirement saving products
                                                                                                                        • Figure 42: Features sought in retirement saving products, June 2011
                                                                                                                      • Pension holders are more likely to look for tax advantages
                                                                                                                        • 45-54-year-olds are the most demanding retirement savers
                                                                                                                          • Concerns about risk are much further down the list for alternative retirement savers
                                                                                                                            • Figure 43: Features sought in retirement saving products, by ownership of pension and alternative retirement products, June 2011
                                                                                                                          • Early retirees more likely to consider flexible options
                                                                                                                            • Figure 44: Features sought in retirement saving products, by retirement planning expectations, June 2011
                                                                                                                        • Targeting Opportunities

                                                                                                                          • Key points
                                                                                                                            • Almost a third of non-retirees prioritise safety in saving for retirement
                                                                                                                              • Figure 45: Target groups for alternative retirement strategies, June 2011
                                                                                                                            • Wanting it all
                                                                                                                              • Not really bothered
                                                                                                                                • Safety First
                                                                                                                                  • It’s all about the returns
                                                                                                                                      • Figure 46: Features sought in retirement saving products, by target groups, June 2011
                                                                                                                                  • Appendix – Broader Market Environment

                                                                                                                                      • Figure 47: Forecast adult population trends, by lifestage, 2006-16
                                                                                                                                      • Figure 48: Trends in the age structure of the UK population, 2006-16
                                                                                                                                  • Appendix – Market Size – Alternative Retirement Savings and Investment Overview

                                                                                                                                      • Figure 49: Number of ISAs and amounts subscribed, by type, 1999/2000-2010/11
                                                                                                                                  • Appendix – Ownership of Alternative Retirement Saving and Investment Products

                                                                                                                                      • Figure 50: Most popular pension and investment product ownership, by demographics, June 2011
                                                                                                                                      • Figure 51: Repertoire of pension and investment product ownership, by demographics, June 2011
                                                                                                                                  • Appendix – Retirement Planning Expectations

                                                                                                                                      • Figure 52: Retirement planning expectations, by demographics, June 2011
                                                                                                                                  • Appendix – Attitudes Towards Saving in a Pension

                                                                                                                                      • Figure 53: Most popular attitudes towards saving for retirement and pensions, by demographics, June 2011
                                                                                                                                      • Figure 54: Next most popular attitudes towards saving for retirement and pensions, by demographics, June 2011
                                                                                                                                      • Figure 55: Other attitudes towards saving for retirement and pensions, by demographics, June 2011
                                                                                                                                  • Appendix – Attitudes Towards Retirement Savings

                                                                                                                                      • Figure 56: Most popular features sought in retirement saving products, by demographics, June 2011
                                                                                                                                      • Figure 57: Next most popular features sought in retirement saving products, by demographics, June 2011
                                                                                                                                      • Figure 58: Other features sought in retirement saving products, by demographics, June 2011
                                                                                                                                  • Appendix – Targeting Opportunities

                                                                                                                                      • Figure 59: Target groups, by demographics, June 2011
                                                                                                                                      • Figure 60: Pension and investment product ownership, by target groups, June 2011
                                                                                                                                      • Figure 61: Attitudes towards saving for retirement and pensions, by target groups, June 2011

                                                                                                                                  Companies Covered

                                                                                                                                  • Aberdeen Asset Management PLC
                                                                                                                                  • Asda Group Ltd
                                                                                                                                  • Association of British Insurers
                                                                                                                                  • Aviva Plc
                                                                                                                                  • AXA Sun Life
                                                                                                                                  • Bank of England
                                                                                                                                  • Co-operative Group
                                                                                                                                  • Council of Mortgage Lenders
                                                                                                                                  • Department for Work and Pensions
                                                                                                                                  • Fidelity Investment Services Limited
                                                                                                                                  • Gfk NOP
                                                                                                                                  • Government Actuary's Department (GAD)
                                                                                                                                  • Halifax Mortgage Services
                                                                                                                                  • Hargreaves Lansdown Plc
                                                                                                                                  • Investec
                                                                                                                                  • Investment Management Association
                                                                                                                                  • Ipsos MORI
                                                                                                                                  • J. Sainsbury
                                                                                                                                  • John Gilbert Financial Research
                                                                                                                                  • Jupiter Unit Trust Managers Ltd
                                                                                                                                  • Land Registry
                                                                                                                                  • Legal & General Group PLC
                                                                                                                                  • Legal & General Investment Management
                                                                                                                                  • London Stock Exchange plc
                                                                                                                                  • M&G Group
                                                                                                                                  • Marks & Spencer
                                                                                                                                  • National Savings & Investments
                                                                                                                                  • Nationwide Building Society
                                                                                                                                  • NS&I
                                                                                                                                  • Office for National Statistics
                                                                                                                                  • Safe Home Income Plans (SHIP)
                                                                                                                                  • Schroder Investment Management
                                                                                                                                  • Scottish Widows Bank plc
                                                                                                                                  • Tesco Plc
                                                                                                                                  • Wm Morrison Supermarkets

                                                                                                                                  Alternative Retirement Strategies - UK - September 2011

                                                                                                                                  £1,750.00 (Excl.Tax)