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Annuities - UK - August 2014

“There is no doubt that the annuities market will suffer a significant drop in 2014, possibly 2015 as well, but consumer demand for a retirement income that provides a predictable, guaranteed income will result in annuities bouncing back.”
- Rich Shepherd, Research Analyst – Financial Services
This report looks at the following issues:

  • People need to be shown why an annuity may still be their best option
  • Guaranteed guidance must convince straight away, starting online

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Table of contents

  1. Introduction

      • Report scope
        • Abbreviations
        • Executive Summary

            • The market
              • Annuity sales dropped by 15% in 2013
                • Figure 1: Forecast of value of annuities sales, 2009-19
              • Non-advised sales now dominate the annuities market
                • Figure 2: Value of total annuities policy sales, by sales channel, 2013
              • Market factors
                • Longer retirements pose challenges for consumers and insurers…
                  • Figure 3: Life expectancy at age 65, 1981-2062
                • … and increases dependency on workers
                  • Rock-bottom interest rates make non-pensions savings less attractive…
                    • Figure 4: BoE base rate, CPI, RPI monthly changes, January 2009-June 2014
                  • … but annuity rates are hardly appealing
                    • Figure 5: Annuity rates and gilt yields, January 1991-July 2014
                  • Reforms set to revolutionise the retirement industry
                    • All retirees to receive free guidance
                      • Companies, products and innovations
                        • Aviva is the market leader in annuity sales
                          • Figure 6: Market share of top four annuity providers versus rest of annuities market, 2013
                        • Insurers withdrew from advertising in 2013/14 as uncertainty rose
                          • Figure 7: Total adspend on annuities and income drawdown products, 2012-14
                        • Insurers offer new products in response to the Budget
                          • The consumer
                            • A quarter of over-45s will be eligible to buy an annuity
                              • Figure 8: Pension and investment product ownership, May 2014
                            • Three quarters are aware of pension reforms, but only half feel they understand the implications
                              • Figure 9: Awareness of changes to pension market announced in 2014 Budget, May 2014
                            • Less than a quarter of potential annuity customers are planning to buy one
                              • Figure 10: Expected retirement income plans, May 2014
                            • Most people expect to see an IFA about their retirement options
                              • Figure 11: Expected sources of retirement information, May 2014
                            • Core annuity features remain top of most retirees’ wishlist
                              • Figure 12: Desired features of retirement income, May 2014
                            • What we think
                            • Issues and Insights

                                • People need to be shown why an annuity may still be their best option
                                  • The facts
                                    • The implications
                                      • Guaranteed guidance must convince straight away, starting online
                                        • The facts
                                          • The implications
                                          • Trend Application

                                            • Be open about death to offer the most suitable product
                                              • Highlight the disappointment of having a small pension fund
                                                • Preparing for retirement starts now!
                                                • Market Drivers

                                                  • Key points
                                                    • Longer lives are stretching pension provisions
                                                      • Figure 13: Life expectancy at age 65, 1981-2062
                                                    • An ageing population will increase dependency on workers
                                                      • Figure 14: Projected proportion of UK population by age bands, 2013-62
                                                    • A worrying proportion have little or no pension provision
                                                      • Figure 15: Pension and investment product ownership, May 2014
                                                    • Savers continue to suffer low rates
                                                      • Figure 16: BoE base rate, CPI, RPI monthly changes, January 2009-June 2014
                                                    • Annuity rates remain low
                                                      • Figure 17: Annuity rates and gilt yields, January 1991-July 2014
                                                  • Regulatory Environment

                                                    • Key points
                                                      • Pension liberalisation promises to revolutionise retirement
                                                        • Guidance guarantee to help retirees with new options
                                                        • Income Drawdown Overview

                                                          • Key points
                                                            • Almost 50% growth in income drawdown value
                                                              • Figure 18: Annuities versus income drawdown plans, 2009-13
                                                            • External sales still dominate income drawdown plans
                                                              • Figure 19: Share of external and internal sales of annuities and income drawdown plans, 2013
                                                            • Nearly nine in ten income drawdown plans are IFA-arranged
                                                              • Figure 20: New income drawdown plans, by sales channel, 2013
                                                          • SWOT Analysis

                                                              • Figure 21: Annuities market SWOT analysis, August 2014
                                                          • Who’s Innovating?

                                                            • Key points
                                                              • Partnership offers get-out option with Enhanced Choice
                                                                • LV= and Just Retirement launch one-year fixed term annuities
                                                                  • Fidelity’s Retirement Service offers guidance to new pension freedoms
                                                                  • Market Size and Forecast

                                                                    • Key points
                                                                      • Fall in sales of annuities, with trouble ahead
                                                                        • Figure 22: Volume and value of new annuities sales, 2009-13
                                                                      • Market forecast
                                                                        • It will take time for annuities sales to recover
                                                                          • Figure 23: Forecast of value of annuities sales, 2009-14
                                                                          • Figure 24: Forecast of value of annuities sales, 2009-14
                                                                        • Forecast methodology
                                                                          • Fan chart explanation
                                                                          • Segment Performance

                                                                            • Key points
                                                                              • Most annuities are bought with smaller pension funds
                                                                                • Figure 25: Share of annuities sold, by size of pension fund, 2013
                                                                              • Growth in annuities bought for over £70,000
                                                                                • Figure 26: Number of annuities sold, by size of pension fund, 2009-13
                                                                              • Enhanced policies continue to grow
                                                                                • Figure 27: Annuities market segment performance, enhanced annuities by total sales, 2009-13
                                                                            • Market Share

                                                                              • Key points
                                                                                • Aviva is the UK’s largest annuity provider
                                                                                  • Figure 28: Top 15 providers in the UK annuity market, by premiums, 2011-13
                                                                                • Top four annuities providers make up over half of the market
                                                                                  • Figure 29: Market share of top four annuities providers versus rest of annuities market, 2013
                                                                              • Companies and Products

                                                                                • Aviva
                                                                                  • Legal & General
                                                                                    • Prudential
                                                                                      • Just Retirement (Avallux Sarl)
                                                                                        • Partnership Assurance (Cinven Ltd)
                                                                                          • Note on companies and products
                                                                                          • Brand Communication and Promotion

                                                                                            • Key points
                                                                                              • Adspend dropped by half in 2013-14
                                                                                                • Figure 30: Total adspend on annuities and income drawdown products, 2012-14
                                                                                              • Aviva are the biggest spending advertisers in retirement income
                                                                                                • Figure 31: Top five advertisers of annuities and income drawdown products, 2012-14
                                                                                              • Big drop in press advertising
                                                                                                • Figure 32: Total adspend on annuities and income drawdown products, by media type, 2012-14
                                                                                              • A note on adspend
                                                                                              • Channels to Market

                                                                                                • Key points
                                                                                                  • External annuities reach parity with internal sales
                                                                                                    • Figure 33: Share of external versus internal new annuity sales, 2003-13
                                                                                                  • Direct sales dominate the market…
                                                                                                    • Figure 34: Volume of total annuities policy sales, by sales channel, 2013
                                                                                                  • … but advised policies are disproportionately valuable
                                                                                                    • Figure 35: Value of total annuities policy sales, by sales channel, 2013
                                                                                                • Pension and Investment Product Ownership

                                                                                                  • Key points
                                                                                                    • A quarter of over-45s could buy an annuity at retirement
                                                                                                      • Figure 36: Pension and investment product ownership, May 2014
                                                                                                    • Men are more likely to have a DC pension than women…
                                                                                                      • Figure 37: Potential annuitants, by gender, May 2014
                                                                                                    • …while DC pension ownership grows alongside income
                                                                                                      • Figure 38: Potential annuitants, by household income, May 2014
                                                                                                    • Potential annuitants are more likely to engage in other saving products
                                                                                                      • Figure 39: Ownership of non-pension savings, potential annuitants versus all, May 2014
                                                                                                  • Awareness of Budget Changes

                                                                                                    • Key points
                                                                                                      • Only half understand pension liberalisation
                                                                                                        • Figure 40: Awareness of changes to pension market announced in 2014 Budget, May 2014
                                                                                                      • Awareness is highest among older consumers
                                                                                                        • Figure 41: Awareness of changes to pension regulations, by age, May 1024
                                                                                                      • Higher earners and higher-educated have a greater understanding
                                                                                                        • Potential annuitants have better awareness and understanding
                                                                                                          • Figure 42: Awareness of changes to pension regulations, potential annuitants versus all, May 2014
                                                                                                      • Expected Retirement Income Plans

                                                                                                        • Key points
                                                                                                          • Less than a quarter of potential annuitants plan to buy one
                                                                                                            • Figure 43: Expected retirement income plans, May 2014
                                                                                                          • Income drawdown could challenge annuities as first-choice for retirees
                                                                                                            • Encashment could be as common as standard annuities
                                                                                                              • Four in ten are unsure about what they intend to do
                                                                                                              • Expected Sources of Retirement Income Information

                                                                                                                • Key points
                                                                                                                  • Most expect to get advice from an IFA
                                                                                                                    • Figure 44: Expected sources of retirement income information, May 2014
                                                                                                                  • Undecided savers are more likely to use an IFA
                                                                                                                    • Figure 45: Expected sources of retirement income information, by expected retirement income plans, May 2014
                                                                                                                  • Only 15% intend to use an independent guidance organisation
                                                                                                                    • Half of DC pension-holders will use non-professional advice
                                                                                                                    • Desired Features of Retirement Incomes

                                                                                                                      • Key points
                                                                                                                        • Consumers want a reliable income
                                                                                                                          • Figure 46: Desired features of a retirement income, May 2014
                                                                                                                        • Annuity features are still popular among those who plan not to buy one
                                                                                                                          • Figure 47: Desired features of retirement income, by expected retirement income plans, May 2014
                                                                                                                        • Male desire to provide for dependents could boost protected annuities
                                                                                                                        • Appendix – Market Size and Forecast

                                                                                                                            • Figure 48: Best- and worst-case forecast of the value of annuities sales, 2014-19
                                                                                                                        • Appendix – Pension and Investment Product Ownership

                                                                                                                            • Figure 49: Pension and investment product ownership, by demographics, May 2014
                                                                                                                            • Figure 50: Pension and investment product ownership, by demographics, May 2014 (continued)
                                                                                                                            • Figure 51: Pension and investment product ownership, by demographics, May 2014 (continued)
                                                                                                                        • Appendix – Awareness of Budget Changes

                                                                                                                            • Figure 52: Awareness of changes to pension market announced in 2014 budget, by demographics, May 2014
                                                                                                                        • Appendix – Expected Retirement Income Plans

                                                                                                                            • Figure 53: Expected retirement income plans, by demographics, May 2014
                                                                                                                            • Figure 54: Expected retirement income plans, by demographics, May 2014 (continued)
                                                                                                                            • Figure 55: Expected retirement income plans, by demographics, May 2014 (continued)
                                                                                                                        • Appendix – Expected Sources of Retirement Income Information

                                                                                                                            • Figure 56: Expected sources of retirement income research, by demographics, May 2014
                                                                                                                            • Figure 57: Expected sources of retirement income research, by demographics, May 2014 (continued)
                                                                                                                        • Appendix – Desired Features of Retirement Incomes

                                                                                                                            • Figure 58: Desired features of retirement incomes, by demographics, May 2014
                                                                                                                            • Figure 59: Desired features of retirement incomes, by demographics, May 2014 (continued)

                                                                                                                        Companies Covered

                                                                                                                        • Aviva Plc
                                                                                                                        • Cinven Ltd
                                                                                                                        • Just Retirement Ltd
                                                                                                                        • Legal & General Group PLC
                                                                                                                        • Prudential plc

                                                                                                                        Annuities - UK - August 2014

                                                                                                                        US $2,583.33 (Excl.Tax)