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Annuities - UK - August 2015

“In retirement, people still want a predictable, guaranteed income more than anything else. Hybrid, or ‘third way’, products that provide this alongside more attractive rates and the ability to keep some pension funds invested to draw a more flexible income from seem well set for significant growth in the years to come.”
– Rich Shepherd, Financial Services Research Analyst

This report discusses the following key topics:

  • Personalised online tools can help plug the advice gap
  • Freedoms cash plans are more cautious than feared
  • Hybrid products seem perfect, but have their own challenges

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Table of contents

  1. Overview

    • Executive Summary

        • The market
          • Sales of annuities fell by half in 2014
            • Figure 1: Forecast of the value of new annuity sales, 2010-20
          • Key players
            • Just Retirement leads a concentrated market
              • Figure 2: UK annuity market share, by share of gross written premiums, 2014
            • The consumer
              • 19% have a DC pension, and ownership is growing
                • Figure 3: Pension and investment product ownership, May 2015
              • Understanding of pension freedoms is encouraging
                • Figure 4: Awareness of pension freedoms, May 2015
              • Income drawdown is the top pick for arranging retirement income
                • Figure 5: Expected plans for use of pension funds to provide a retirement income, May 2015
              • Savings and investments are the most popular use of withdrawn funds
                • Figure 6: Expected use of pension freedoms cash, May 2015
              • 17% expect to use Pension Wise
                • Figure 7: Sources expected to be used to get retirement income information, May 2015
              • People still want guaranteed incomes
                • Figure 8: Desired features of retirement income, May 2015
              • What we think
              • Issues and Insights

                • Personalised online tools can help plug the advice gap
                  • The facts
                    • The implications
                      • Freedoms cash plans are more cautious than feared
                        • The facts
                          • The implications
                            • Hybrid products seem perfect, but have their own challenges
                              • The facts
                                • The implications
                                • The Market – What You Need to Know

                                  • Sales of annuities fell by half in 2014
                                    • Retirement income is an increasingly important social issue
                                      • Internal and non-advised sales rise
                                        • Boom in income drawdown sales
                                        • Market Size and Forecast

                                          • Budget reforms cut annuity sales in half in 2014
                                            • Figure 9: Volume and value of new annuity sales, 2010-15
                                          • Market forecast
                                            • Figure 10: Forecast of the value of new annuity sales, 2010-20
                                        • Market Drivers

                                          • Pension freedoms take effect
                                            • Longer retirements should make guaranteed incomes more attractive…
                                              • Figure 11: Actual and projected life expectancies at 65, by gender, 1981-2062
                                            • …but not until rates improve
                                              • Figure 12: Annuity rates and gilt yields, January 1991-June 2015
                                            • Increased dependency ratio will strain state support
                                              • Figure 13: Projected proportion of UK population, by age bands, 2014-62
                                            • Delayed state pensions put more focus on personal responsibility
                                              • Figure 14: Projected dates for full transitions to increased state pension ages, by gender
                                            • Auto-enrolment is changing the pensions industry forever
                                              • Figure 15: Pension provisions of UK workers, by type of pension, 2005-14
                                            • Those with smaller funds have deserted annuities quickest
                                              • Figure 16: Share of new annuity sales, by value of pension fund, 2004-14
                                          • Channels to Market

                                            • First rise in internal sales since 2007
                                              • Figure 17: Share of internal versus external new annuity sales, 2004-14
                                            • Small drop in advised sales
                                              • Figure 18: Volume of total annuities policy sales, by sales channel, 2013 versus 2014
                                              • Figure 19: Value of total annuities policy sales, by sales channel, 2013 versus 2014
                                          • Income Drawdown Overview

                                            • Huge rise in income drawdown
                                              • Figure 20: Annuities versus income drawdown plans, 2010-14
                                            • Non-advised drawdown platforms make gains
                                              • Figure 21: Volume of new income drawdown contracts, by sales channel, 2013 versus 2014
                                              • Figure 22: Value of new income drawdown contracts, by sales channel, 2013 versus 2014
                                          • Key Players – What You Need to Know

                                            • Just Retirement leads a concentrated market
                                              • Companies find their place in a new market
                                              • Market Share

                                                • Just Retirement is the UK’s largest annuity provider…
                                                  • Figure 23: Top 15 providers in the UK annuity market, by premiums, 2012-14
                                                • …but the market remains heavily concentrated
                                                  • Figure 24: Market share of top five annuity providers versus rest of annuities market, 2014
                                              • Competitive Strategies

                                                • Advertising spending has been slashed
                                                  • ‘Third way’ products set to boom
                                                    • Focus on service
                                                      • Adspend data coverage
                                                      • The Consumer – What You Need to Know

                                                        • 19% have a DC pension, and ownership is growing
                                                          • Understanding of pension freedoms is encouraging
                                                            • Income drawdown is the top pick for arranging retirement income
                                                              • Savings and investments are the most popular use of withdrawn funds
                                                                • 17% expect to use Pension Wise
                                                                  • People still want guaranteed incomes
                                                                  • Pension Ownership

                                                                    • 37% are in the potential annuities market…
                                                                      • Figure 25: Pension and investment product ownership, May 2015
                                                                    • …but inequalities remain
                                                                      • Figure 26: Potential annuitants, by gender, employment status and annual household income, May 2015
                                                                    • Most have one or two savings products
                                                                      • Figure 27: Repertoire of pension and investment product ownership, May 2015
                                                                    • Potential annuitants are the most likely to also save outside pensions
                                                                      • Figure 28: Ownership of any non-pensions savings and investments product, by pension ownership, May 2015
                                                                  • Awareness of Pension Freedoms

                                                                    • 82% have some awareness of pension freedoms…
                                                                      • Figure 29: Awareness of pension freedoms, May 2015
                                                                    • …up 7 percentage points from 2014
                                                                      • Figure 30: Awareness of pension freedoms, May 2014 versus May 2015
                                                                    • Understanding is higher among those nearer to retirement…
                                                                      • Figure 31: Agreement with the statement “I am aware of the change and have at least some understanding of what it means”, by age, May 2015
                                                                    • …and those affected by freedoms
                                                                      • Figure 32: Awareness of pension freedoms, by pension ownership, May 2015
                                                                  • Expected Retirement Income Plans

                                                                    • Income drawdown is the most popular retirement income plan…
                                                                      • Figure 33: Expected plans for use of pension funds to provide a retirement income, May 2015
                                                                    • …while just 18% still expect to get an annuity
                                                                      • Only 5% plan to take all their pension as a lump sum
                                                                      • Use of Pension Freedoms Cash

                                                                        • Half plan to invest pensions withdrawals…
                                                                          • Figure 34: Expected use of pension freedoms cash, May 2015
                                                                        • …while a fifth look to clear debts
                                                                          • Travel and retail markets set to benefit
                                                                            • 11% plan to give a ‘living inheritance’
                                                                            • Expected Sources of Retirement Income Information

                                                                              • 17% plan to use Pension Wise
                                                                                • Figure 35: Sources expected to be used to get retirement income information, May 2015
                                                                              • Half expect to pay for advice…
                                                                                • …while non-pensions savers are most likely to use an IFA
                                                                                  • Figure 36: Expected sources of retirement income information, by non-pensions saving ownership, May 2015
                                                                                • A third will research online
                                                                                • Desired Features of Retirement Income

                                                                                  • An annuity in all but name
                                                                                    • Figure 37: Desired features of retirement income, May 2015
                                                                                  • Prospective income drawdown customers still want a reliable income
                                                                                    • Figure 38: Desire for a reliable retirement income, by expected retirement income plans, May 2015
                                                                                  • Higher earners are more concerned with securing a life-long income
                                                                                    • Figure 39: Desire for a retirement that features “An income that is guaranteed to pay out for the rest of my life”, by annual household income, May 2015
                                                                                • Appendix – Market Size and Forecast

                                                                                    • Figure 40: Best- and worst-case forecast of the value of new annuity sales, 2015-20
                                                                                • Appendix – Abbreviations

                                                                                  • Abbreviations

                                                                                  Companies Covered

                                                                                  To learn more about the companies covered in this report please contact us.

                                                                                  Annuities - UK - August 2015

                                                                                  £1,995.00 (Excl.Tax)