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Pension Auto-Enrolment Consumer Report - UK - September 2012

  • What is the main issue for people who are likely to opt out?
  • How can employees be encouraged to contribute more themselves?
  • Can IFAs benefit from the introduction of auto-enrolment?

About the Pension Auto-Enrolement Scheme in the UK

Pension savings rates in the UK have declined significantly over the past several decades as both the quality and availability of workplace pension benefits in the private sector has progressively deteriorated. Part of the reason for this decline in workplace pension provision is associated with an impressive improvement in longevity, which has made saving for retirement more important than ever before. Even though this pension savings deficit could have been made up through private pension arrangements, only a minority of British adults have shown the initiative to contribute to private pension savings accounts.

This reality has compelled the government to take action in order to prevent the pensions saving gap from getting further out of control. As a result from October 2012, millions of British workers without existing pension arrangements will begin to be automatically enrolled into a pension scheme with their employer. While it is expected that up to two fifths of those may choose to opt out, the introduction of auto-enrolment is expected to put years of declining pension activity in Britain to an end.

This report provides readers with an overview of how pension auto-enrolment will impact the wider UK pension and retirement savings landscape. As a part of the analysis the report details the size of the existing workplace and personal pension markets and also highlights the key market drivers behind the introduction and ongoing development of auto-enrolment in the UK. In addition to this there is a strong focus on auto-enrolment from the perspective of the British consumer. This includes an investigation into consumer awareness of, and attitudes towards, auto-enrolment, as well as how likely consumers would be to opt out of the scheme.

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • Pension ownership in the UK
            • Just over two fifths of those in employment say they have a workplace pension
              • Figure 1: Pension ownership, overall vs among those who are employed, July 2012
            • The decline of active private sector pension membership
              • Figure 2: Number of active members of private sector occupational schemes (open and closed) – UK, by size and benefit structure, 2010
            • Overview of pension auto-enrolment
              • NEST and other low-cost providers enter the market
                • Market factors
                  • Living longer enhances the need for retirement savings
                    • Figure 3: Life expectancy at age 65, by gender,1981-2059
                  • Most consumers have not picked up the slack from the decline in pension provision
                    • The consumer
                      • Most think their finances are healthy or OK
                        • Figure 4: Current financial situation, July 2012
                      • Nearly two thirds of non-retired adults haven’t heard of auto-enrolment
                        • Figure 5: Awareness of pension auto-enrolment, July 2012
                        • Figure 6: Likelihood of opting out of pension auto-enrolment, July 2012
                      • Reasons for opting out – a lack of affordability and trust
                        • Figure 7: Reasons for opting out of pension auto-enrolment, by likelihood of opting out, July 2012
                      • Attitudes towards the concept of pension auto-enrolment – most in favour
                        • Figure 8: Agreement with statements about the concept of pension auto-enrolment, July 2012
                      • Attitudes towards contributing to a pension – assurances wanted
                        • Figure 9: Agreement with statements about contributing to a workplace pension, July 2012
                      • What we think
                      • Issues in the Market

                          • Who wins with auto-enrolment?
                            • What is the main issue for people who are likely to opt out?
                              • How can employees be encouraged to contribute more themselves?
                                • Can IFAs benefit from the introduction of auto-enrolment?
                                • Trend Application

                                  • Visualise your future retirement today
                                    • A lifelong approach to financial heath
                                      • The pivotal role of the employer
                                      • Market Drivers

                                        • Key points
                                          • Increasing longevity intensifies the need for retirement savings
                                            • Figure 10: Life expectancy at age 65, by gender, 1981-2059
                                          • Active private sector pension membership has been in steady decline
                                            • Figure 11: Number of active occupational pension scheme members, pensions in payment and preserved entitlements – UK, by sector, 2006-10
                                            • Figure 12: Number of active members of private sector occupational schemes (open and closed) – UK, by size and benefit structure, 2010
                                          • The failure of stakeholder pensions to stem the tide
                                            • The lack of independent savings highlights the need for auto-enrolment
                                              • Intended pension savings turns up but still below long-term average
                                                • Figure 13: Intended life, pensions* and ISA activity, Q3/Q4 2002-Q1/Q2 2012
                                              • Instant access makes ISAs the preferred savings and investment product
                                              • SWOT Analysis

                                                  • Figure 14: Auto-enrolment – SWOT analysis, 2012
                                              • Overview of Pension Auto-Enrolment

                                                • Key points
                                                  • Pension auto-enrolment in brief
                                                    • The basics and who qualifies
                                                      • Minimum contribution levels
                                                        • Figure 15: Minimum auto-enrolment employer and employee contribution levels, by date of enforcement
                                                      • Staging dates
                                                        • Figure 16: Auto-enrolment staging dates, by PAYE scheme size
                                                      • Auto-enrolment and eligibility for means-testing benefits
                                                      • Auto-Enrolment and Pension Providers

                                                        • Key points
                                                          • NEST and other low-cost propositions
                                                            • NEST
                                                              • Other key facts and charges
                                                                • B&CE – The People’s Pension
                                                                  • Other key facts and charges
                                                                    • NOW: Pensions
                                                                      • Other key facts and charges
                                                                        • The positives and negatives for existing providers
                                                                        • Auto-Enrolment –Employers and IFAs

                                                                          • Key points
                                                                            • Auto-enrolment’s impact on employers
                                                                              • Two fifths of employers have yet to develop a strategy to deal with costs
                                                                                • Figure 17: How employers plan to deal with increased costs related to auto-enrolment, March 2012
                                                                              • The potential challenges of enforcing auto-enrolment
                                                                                • 40% of new members opt-out of auto-enrolment at RBS
                                                                                  • A third of IFAs are concerned about personal pension business prospects
                                                                                    • Figure 18: Biggest challenges facing pension intermediaries, 2009-11
                                                                                  • Opportunities for IFAs in the employer benefits arena
                                                                                  • Pension Market Overview

                                                                                    • Key points
                                                                                      • Workplace pensions
                                                                                        • Across the board growth in new insurer-administered occupational pension business
                                                                                          • Figure 19: New insurer-administered occupational pension business, by volume and value, 2005-11
                                                                                        • Auto-enrolment will help boost new business levels
                                                                                          • The shift to a DC dominated market
                                                                                            • Figure 20: Insurer-administered occupational pension business in force, 2006-10
                                                                                          • GPP market has benefited from greater interest from large employers
                                                                                            • Figure 21: New GPP business, 2005-11
                                                                                          • Flexibility a key attraction of GPPs
                                                                                            • Figure 22: Group personal pension business in force, 2006-10
                                                                                          • Personal and individual stakeholder pensions
                                                                                            • New premiums continue to fall
                                                                                              • Figure 23: New personal pension and individual stakeholder pension business, 2007-11
                                                                                          • Consumer Financial Confidence

                                                                                            • Key points
                                                                                              • Most believe their finances are healthy or OK
                                                                                                • Figure 24: Current financial situation, July 2012
                                                                                              • Financial confidence over the next year – most concerned but expect to manage
                                                                                                • Figure 25: Financial confidence, July 2009-12
                                                                                              • The mood of caution is a window of opportunity
                                                                                              • Pension Ownership

                                                                                                • Key points
                                                                                                  • Just over two fifths of those in employment have a workplace pension
                                                                                                    • Figure 26: Pension ownership, by type of employment, July 2012
                                                                                                  • Expansion of pension ownership needed among nearly all age groups
                                                                                                    • Figure 27: Pension ownership, by gender and age, July 2012
                                                                                                  • Pension ownership among lower-earners highlights the need for reform
                                                                                                    • Figure 28: Pension ownership, by gross annual household income, July 2012
                                                                                                • Awareness of Auto-Enrolment

                                                                                                  • Key points
                                                                                                    • Nearly two thirds of non-retired adults haven’t heard of auto-enrolment
                                                                                                      • Figure 29: Awareness of pension auto-enrolment, July 2012
                                                                                                    • Above-average level of awareness among full-time employees
                                                                                                      • Figure 30: Awareness of pension auto-enrolment, by working status, July 2012
                                                                                                    • Older generation has the highest level of awareness
                                                                                                      • Figure 31: Awareness of pension auto-enrolment, by age, July 2012
                                                                                                    • Affluent more likely to be aware
                                                                                                      • Spreading awareness may require a more targeted approach
                                                                                                      • Likelihood of Opting Out

                                                                                                        • Key points
                                                                                                          • Only a small minority say they would definitely opt-out
                                                                                                            • Figure 32: Likelihood of opting out of pension auto-enrolment, July 2012
                                                                                                          • Self-employed and part-time workers more likely to say they will opt out
                                                                                                            • Figure 33: Likelihood of opting out of pension auto-enrolment, July 2012
                                                                                                          • Those aged between 20 and 34 most likely to remain enrolled
                                                                                                            • Figure 34: Likelihood of opting out of pension auto-enrolment, by gender and age, July 2012
                                                                                                          • Over-45s most likely to say they will definitely opt-out
                                                                                                            • Gross annual household income and likelihood of opting out
                                                                                                              • Figure 35: Likelihood of opting out of pension auto-enrolment, by gross annual household income, July 2012
                                                                                                          • Reasons for Opting Out

                                                                                                            • Key points
                                                                                                              • A lack of funds the top overall reason for opting out
                                                                                                                • Figure 36: Reasons for opting out of pension auto-enrolment, by likelihood of opting out, July 2012
                                                                                                              • Trust a central issue for those most likely to opt out
                                                                                                                • Figure 37: Percentage of people who say they would opt out because of distrust of government or pensions, by age, July 2012
                                                                                                              • Rebuilding trust will be a challenge…
                                                                                                                • … but will be essential to preventing mass opt-outs
                                                                                                                • Attitudes Towards the Concept of Pension Auto-Enrolment

                                                                                                                  • Key points
                                                                                                                    • Three fifths think auto-enrolment is a good idea
                                                                                                                      • Figure 38: Consumer attitudes toward the concept of auto-enrolment, July 2012
                                                                                                                    • Positive attitudes of younger generation an opportunity not to be wasted
                                                                                                                      • Two fifths worry auto-enrolment will affect their pay
                                                                                                                        • Figure 39: Consumer attitudes toward the concept of auto-enrolment, July 2012
                                                                                                                      • Who’s most concerned?
                                                                                                                      • Attitudes Towards Contributing to a Workplace Pension

                                                                                                                        • Key points
                                                                                                                          • A strong desire for certainty
                                                                                                                            • Figure 40: Attitudes towards auto-enrolment, July 2012
                                                                                                                          • There are no guarantees but there are plenty of benefits
                                                                                                                            • Lower wage earners and over-45s will require more guidance
                                                                                                                              • Employer contributions a key attraction
                                                                                                                                • Figure 41: Attitudes towards auto-enrolment - contributions, July 2012
                                                                                                                              • Less overall enthusiasm about employee contributions
                                                                                                                                • Highlighting the benefits of individual contributions
                                                                                                                                  • Offering limited early access an option worth considering
                                                                                                                                  • Appendix – Pension Ownership

                                                                                                                                      • Figure 42: Pension ownership, by demographics, July 2012
                                                                                                                                      • Figure 43: Pension ownership, by demographics continued, July 2012
                                                                                                                                      • Figure 44: Pension ownership, by demographics continued, July 2012
                                                                                                                                  • Appendix – Awareness of Auto-Enrolment

                                                                                                                                      • Figure 45: Awareness of pension auto-enrolment, by pension ownership, July 2012
                                                                                                                                      • Figure 46: Awareness of auto-enrolment, by demographics, July 2012
                                                                                                                                  • Appendix – Likelihood of Opting-out

                                                                                                                                      • Figure 47: Likelihood of opting out of auto-enrolment, by demographics, July 2012
                                                                                                                                  • Appendix – Reasons for Opting Out

                                                                                                                                      • Figure 48: Reasons for opting out, by demographics, July 2012
                                                                                                                                      • Figure 49: Reasons for opting out, by demographics (continued), July 2012
                                                                                                                                  • Appendix – Attitudes Towards the Concept of Auto-Enrolment

                                                                                                                                      • Figure 50: Agreement with the statements ‘It sounds like a good idea’ and ‘I just don’t trust pension schemes, no matter who is offering them’, by demographics, July 2012
                                                                                                                                      • Figure 51: Agreement with the statements ‘It probably will not apply to me as my employer already offers a good pension’ and ‘I am worried that if my employer is forced to contribute to a pension it will affect my chances of a pay rise, or that there will be cutbacks’, by demographics, July 2012
                                                                                                                                      • Figure 52: Agreement with the statement ‘Pension regulations change so much that I just can’t keep track of them’, by demographics, July 2012
                                                                                                                                  • Appendix – Attitudes Towards Contributing to a Workplace Pension

                                                                                                                                      • Figure 53: Agreement with the statements ‘I like the idea of making employers contribute’ and ‘I could probably afford to pay more than 4% of my salary into it’, by demographics, July 2012
                                                                                                                                      • Figure 54: Agreement with the statements ‘I would like to have the option of paying less than 4% of my salary’ and ‘I would be happy to pay into the scheme if it provided a guaranteed minimum pension when I retire’, by demographics, July 2012
                                                                                                                                      • Figure 55: Agreement with the statements ‘I need assurances that I would be better off paying into it’ and ‘I would like to speak to a pensions adviser about this scheme before it is introduced’, by demographics, July 2012

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                                                                                                                                  Pension Auto-Enrolment Consumer Report - UK - September 2012

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