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Eye on intermediaries - Pensions and Retirement Income - UK - February 2009

he combination of a rapidly greying UK population, considerable improvements in longevity and declining state and occupational pension provision, has made retirement planning more important than ever before. While past generations will have benefited from more generous pension arrangements, an increasing number of people are finding that they themselves are responsible for ensuring a comfortable retirement. As a result of these factors there is strong reason to believe that demand for pension and retirement income related advice should increase considerably over the long term.

In the near term, however, prospects for pension intermediaries are much less favourable as the economic and regulatory environment is making things especially challenging. From the consumer side of things difficulties in the economy have led more people to focus on immediate issues, such as paying down debt or facing the prospect of unemployment, rather than long-term pension savings. At the same time, changes in the regulatory environment have made running an IFA firm ever more burdensome, increasing the likelihood of further consolidation within the industry. Indeed, the number of directly authorised retail intermediary firms has fallen by more than 13% over the last three years.

This report presents an overview of the key issues affecting the market for pension and retirement income intermediaries. In addition to examining the wider economic, demographic and regulatory environment, the report details the value of new individual pension and retirement income business generated by each specific intermediary channel. Furthermore, the report also highlights market strengths and weaknesses and identifies potential market opportunities and threats.

The final section of the report presents the findings of Mintel’s exclusively commissioned IFA research survey. Here the reader is provided with valuable insight into how pension IFAs feel about their prospects, client expectations, as well as opinions on the regulatory environment.

Key issues

  • Regulatory changes associated with the FSA’s retail distribution review and TCF initiatives are making it increasingly difficult for smaller directly regulated IFA firms.

  • Increased capital requirements threaten to put many smaller IFA firms out of business and will likely force many to join national IFA networks.

  • Difficult economic conditions have lead to a decrease in the demand for individual pension products in the past year.

  • Lack of affordability, as well as unawareness, apathy and distrust of advisers are additional factors currently holding the market back.

  • The introduction of Personal Accounts in 2012 could adversely affect pension intermediary business.

  • Longer term demographic and social trends are much more positive for the industry (ie a gradually older and more affluent population, decreased occupational and state pension provision, increased job mobility).

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Table of contents

  1. Issues in the Market

      • Key issues
        • Market background and definitions
          • Overview of sources of financial advice
            • Figure 1: Different sources of financial advice
          • Depolarisation – providing more choice
            • Figure 2: Overview of depolarisation
          • High street banks since depolarisation
            • HSBC and Barclays commit to multi-tie model
              • Others focus on their own bancassurance operations
                • Pension products
                  • Annuity-related terms and definitions
                      • Figure 3: Overview of the annuity and retirement income market
                    • Common product types
                      • Single or joint life
                        • Cash lump sum
                          • Open market option
                            • Alternatives
                              • Pensions simplification and income drawdown
                                • Alternatively secured pensions
                                  • Abbreviations
                                  • Future Opportunities

                                    • ‘Re-intermediation’ in times of uncertainty
                                      • Staying Connected – IFAs finally taking advantage of web 2.0
                                        • Helping consumers eliminate debt may boost IFA pension business
                                        • Market in Brief

                                          • The intermediary marketplace
                                            • Figure 4: Number of FSA directly authorised retail intermediary firms, by primary category, January 2006-September 2008
                                          • Internal market environment
                                            • Regulatory developments
                                              • Long-term economic and demographic trends favourable
                                                • Overview of individual pension and retirement income distribution
                                                  • New individual and group pension business slows in 2008
                                                    • 80% of new individual pension APE premiums sold through IFAs
                                                      • Figure 5: New APE* premiums into individual pensions, by type of pension and distribution channel, 2008 (est)
                                                    • £7.2 billion in new annuity business generated by IFAs in 2008
                                                      • Key IFA research survey results
                                                        • Client advice and expectations
                                                          • Prospects and future business intentions
                                                            • Opinions on legislation
                                                            • Internal Market Environment

                                                              • Key points
                                                                • Occupational pension provision on the decline
                                                                  • Figure 6: Status of private and public sector schemes, 2007
                                                                • More people will have to make their own pension arrangements
                                                                  • Past mistakes hold advice market back
                                                                    • Just a quarter of consumers believe financial advisers have their customers’ best interests at heart
                                                                      • Figure 7: Agreement with statements about savings and investment advice, December 2008
                                                                    • IFAs account for 12% of FOS complaints…
                                                                      • Figure 8: Financial services firms complained about, by sector, 2006/07
                                                                    • … with only 5% of complaints regarding pensions advice
                                                                      • Figure 9: IFAs – Wwhich products were complained about, 2006/07
                                                                    • FOS smaller firms’ taskforce
                                                                      • FSA claims that many may have been given wrong pension advice
                                                                        • Affordability is preventing many from contributing to a pension
                                                                          • Figure 10: Reasons for not saving, June 2008
                                                                        • Consumer apathy also a significant barrier
                                                                          • Psychological barriers also persist
                                                                            • Increasingly complex products make getting advice essential
                                                                              • The imminent arrival of Personal Accounts in 2012…
                                                                                • …with a number of residual effects
                                                                                  • Many retirees unaware of their at-retirement options
                                                                                    • More consumers browsing the internet for information on finance
                                                                                      • Indemnity cover and regulation hits IFA’s bottom line
                                                                                      • Broader Market Environment

                                                                                        • Key points
                                                                                          • Improving longevity means longer retirements
                                                                                            • Figure 11: Cohort life expectancy at age 60, by gender, 1981-2054
                                                                                          • More time spent in retirement but less money to fund it
                                                                                            • Figure 12: Average gross weekly income of pensioner units*, by age, 2006/07
                                                                                          • A greater need for self-sufficiency and thus life and pension advice
                                                                                            • More than 8 out of 10 people over 50 still saving for retirement
                                                                                              • Increased job mobility and lifestyle changes present opportunities
                                                                                                • An increasingly affluent population increased demand for advice
                                                                                                  • Many consumers are likely to find saving difficult in the near term
                                                                                                    • Poor stock market performance undermining confidence
                                                                                                      • Uncertainty can increase demand for advice
                                                                                                      • Regulatory Developments

                                                                                                        • Key points
                                                                                                          • The Retail Distribution Review
                                                                                                            • Clarity of services – Independent advice vs sales advice
                                                                                                              • A move toward customer agreed remuneration (CAR)
                                                                                                                • Raising professional standards
                                                                                                                  • New capital adequacy requirements…
                                                                                                                    • …May be too much for small IFAs
                                                                                                                      • Treating Customers Fairly initiative
                                                                                                                        • Industry reaction to TCF
                                                                                                                          • Thoresen Review – Money Guidance service
                                                                                                                            • Impact on market for financial advice
                                                                                                                            • Consumer Context

                                                                                                                              • Key points
                                                                                                                                • Savings and investment moving up the agenda
                                                                                                                                  • Figure 13: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2007-September 2008
                                                                                                                                • Affluent and wealthy to increase activity levels
                                                                                                                                  • Figure 14: Expected financial activity, by socio-demographic and income groups, September 2008 and average for the last 26 quarters
                                                                                                                                • Mixed bag for life and pension intermediaries
                                                                                                                                  • Figure 15: Intended life and pensions* activity, Q3/Q4 2002-Q3/Q4 2008
                                                                                                                                • Investor sentiment remains weak
                                                                                                                                  • Figure 16: Intended purchases of shares and equity-based unit trusts, government and corporate bonds and bond-based unit trusts and sales of equities and unit trusts, Q3/Q4 2002-Q3/Q4 2008
                                                                                                                                • Cash-based saving intentions rise but could fall along with inflation
                                                                                                                                  • Figure 17: Intended cash-based activities, Q3/Q4 2002-Q3/Q4 2008
                                                                                                                              • Strengths and Weaknesses in the Market

                                                                                                                                  • Figure 18: Market for pension related advice– SWOT analysis, 2009
                                                                                                                              • Market Developments and Innovations

                                                                                                                                • Key points
                                                                                                                                  • Advisers expect rise in web-based client servicing
                                                                                                                                    • paaleads.com – Online lead generation for IFAs
                                                                                                                                      • Rubii.co.uk – the financial adviser search engine
                                                                                                                                        • Aviva launches controlyourpension.com
                                                                                                                                          • FSA introduces pension switching advice plan
                                                                                                                                            • Barclays introduces alternative investment friendly pension products
                                                                                                                                            • Trade Perspective

                                                                                                                                                • The market for pensions
                                                                                                                                                  • Overall market conditions for advisers
                                                                                                                                                    • Client pension contribution levels
                                                                                                                                                      • Relationship with providers
                                                                                                                                                        • Opinions on bancassurance
                                                                                                                                                          • Mixed views on the potential of online distribution
                                                                                                                                                          • The Intermediary Marketplace

                                                                                                                                                            • Key points
                                                                                                                                                              • Overview of the intermediary marketplace
                                                                                                                                                                • Figure 19: Number of FSA directly authorised retail intermediary firms, by primary category, January 2006 to September 2008
                                                                                                                                                              • An increase in the number of firms undertaking financial advice activities
                                                                                                                                                                • Figure 20: Number of directly authorised financial advice firms, January 2006-September 2008
                                                                                                                                                              • But the next five years will be difficult
                                                                                                                                                              • Distribution Overview

                                                                                                                                                                • Key points
                                                                                                                                                                  • IFAs drive new personal pension and annuity business
                                                                                                                                                                    • EBC involvement in group pension sales
                                                                                                                                                                      • 80% of new individual pension business sold via IFAs
                                                                                                                                                                        • Figure 21: Proportional distribution of new APE* premiums into individual pensions, by distribution channel, 2003-08
                                                                                                                                                                      • Direct channels are growing their distribution share of annuities
                                                                                                                                                                        • Figure 22: Proportional distribution of new pension annuity premiums, by sales channel, 2003-08
                                                                                                                                                                      • Income drawdown mainly sold through IFAs and tied-agents
                                                                                                                                                                        • Figure 23: Proportional distribution of new income drawdown premiums, by sales channel, 2003-08
                                                                                                                                                                      • Individual pension distribution – detailed breakdown
                                                                                                                                                                        • Tied agents gaining a greater share of personal pensions business
                                                                                                                                                                          • Figure 24: Proportional distribution of new APE* premiums into personal pensions, by distribution channel, 2003-08
                                                                                                                                                                        • IFAs generated 90% of new GPP business in 2008
                                                                                                                                                                          • Figure 25: Proportional distribution of new APE* premiums into personal pensions, by distribution channel, 2003-08
                                                                                                                                                                        • Two in five individual stakeholder pensions sold via bancassurance
                                                                                                                                                                          • Figure 26: Proportional distribution of new APE* premiums into individual stakeholder pensions, by distribution channel, 2003-08
                                                                                                                                                                        • Company-sponsored stakeholder pensions mainly sold through IFAs
                                                                                                                                                                          • Figure 27: Proportional distribution of new APE* premiums into company sponsored stakeholder pensions, by distribution channel, 2003-08
                                                                                                                                                                        • Most new SIPP business generated through IFAs
                                                                                                                                                                          • Figure 28: Proportional distribution of new APE* premiums into SIPPs, by distribution channel, 2003-08
                                                                                                                                                                      • Market Size – Individual and Group Pensions

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Individual vs. occupational pension schemes
                                                                                                                                                                            • Figure 29: Total new premiums paid into insurance-administered individual and occupational pensions, 2003-08
                                                                                                                                                                          • New business down in 2008
                                                                                                                                                                            • Figure 30: New individual pension premiums, by product type, 2003-08
                                                                                                                                                                          • New SIPP and GPP business has boosted the overall market
                                                                                                                                                                            • In force business growth has been unimpressive
                                                                                                                                                                              • Figure 31: Total number of policies and regular premiums from individual pensions business in force, by pension type, 2003-07
                                                                                                                                                                          • Market Segmentation by Type of Intermediary – Individual and Group Pensions

                                                                                                                                                                            • Key points
                                                                                                                                                                              • 80% of new APE premiums sold through IFAs
                                                                                                                                                                                • Figure 32: New APE* premiums into individual pensions, by type of pension and distribution channel, 2008 (est)
                                                                                                                                                                              • IFAs responsible for £14 billion in new single premiums in 2008
                                                                                                                                                                                • Figure 33: Value of new premiums sold through independent intermediaries, by type of premium and pension, 2003-08
                                                                                                                                                                              • Single-tie new APE single premiums rise 15% over the past year
                                                                                                                                                                                • Figure 34: Value of new premiums sold through single-tie agents, by type of premium and pension, 2003-08
                                                                                                                                                                              • Non-intermediated new premium business declines
                                                                                                                                                                                • Figure 35: Value of non-intermediated new premiums, by type of premium and pension, 2003-08
                                                                                                                                                                              • Bancassurance worth close to £1 billion in new single premiums
                                                                                                                                                                                • Figure 36: Value of new premiums sold through bancassurance, by type of premium and pension, 2003-08
                                                                                                                                                                            • Market Size – Annuities and Income Drawdown

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Annuity sales have been booming after A-Day
                                                                                                                                                                                  • Figure 37: New pension annuity business – number of new contracts and the value of new premiums, 2003-08
                                                                                                                                                                                • In-force pension annuity business
                                                                                                                                                                                  • Figure 38: Pension annuity business in force – payments per annum, 1997-2007
                                                                                                                                                                                • Income drawdown the main alternative to an annuity
                                                                                                                                                                                  • Figure 39: Size of the pension annuities market versus the income drawdown market – new business, 2003-08
                                                                                                                                                                              • Market Segmentation by Type of Intermediary – Annuities and Income Drawdown

                                                                                                                                                                                • Key points
                                                                                                                                                                                  • £7.2 billion in new annuity business generated by IFAs in 2008
                                                                                                                                                                                    • Figure 40: Value of new pension annuity premiums, by sales channel, 2003-08
                                                                                                                                                                                  • IFAs generate £2 billion in new income drawdown business
                                                                                                                                                                                    • Figure 41: Value of new income drawdown premiums, by sales channel, 2003-08
                                                                                                                                                                                • Market Overview and Key Players

                                                                                                                                                                                  • Market structure for financial advice
                                                                                                                                                                                    • Figure 42: Basic overview of market for financial advice
                                                                                                                                                                                  • Key players in IFA market
                                                                                                                                                                                    • The Tenet Group
                                                                                                                                                                                      • Sesame
                                                                                                                                                                                        • Bankhall
                                                                                                                                                                                          • Simply Biz
                                                                                                                                                                                            • Key players in retail banking advice market
                                                                                                                                                                                              • Barclays Financial Planning
                                                                                                                                                                                                • Lloyds Banking Group plc/Scottish Widows
                                                                                                                                                                                                • Brand Communication and Promotion

                                                                                                                                                                                                  • Key points
                                                                                                                                                                                                    • Advertising financial advice
                                                                                                                                                                                                      • £21.6 million spent advertising financial advice in 2008
                                                                                                                                                                                                        • Figure 43: Overview of total adspend on financial advice services, year to December 2004-08
                                                                                                                                                                                                      • Direct mail and press most popular forms of advertising
                                                                                                                                                                                                        • Figure 44: Overview of media type used to advertise financial advice services, Year to December 2008
                                                                                                                                                                                                      • Providers advertising products to intermediaries
                                                                                                                                                                                                        • Pension providers intermediary directed adspend totals £1.7 million
                                                                                                                                                                                                          • Figure 45: Total intermediaries directed adspend, by product type, year to December 2004-08
                                                                                                                                                                                                        • Top ten spend £1.3 million advertising pension and annuity products in 2008
                                                                                                                                                                                                          • Figure 46: Top ten advertisers of pension and annunity products to intermedaires, year to December 2004-08
                                                                                                                                                                                                        • All advertising to intermediaries goes through the press
                                                                                                                                                                                                          • Figure 47: Top ten publications used by providers to advertise pension and annuity products to intermediaries, Year to December 2008
                                                                                                                                                                                                      • The IFA: Client Advice and Expectations

                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                          • 31% expect clients to reduce pension contribution levels
                                                                                                                                                                                                            • Figure 48: Expectations of how the economic slowdown will affect client pension contributions, January 2009
                                                                                                                                                                                                          • Two thirds of IFAs are advising clients to invest in collectives
                                                                                                                                                                                                            • Figure 49: Where IFAs are recommending their clients invest their money, January 2009
                                                                                                                                                                                                          • Corporate bonds are also looking more attractive
                                                                                                                                                                                                          • The IFA: Prospects and Future Business Intentions

                                                                                                                                                                                                            • Key points
                                                                                                                                                                                                              • 60% of IFAs feeling less confident about prospects
                                                                                                                                                                                                                • Figure 50: Confidence in the financial services market compared to six months ago, January 2009
                                                                                                                                                                                                              • Economy is the biggest challenge facing pension business
                                                                                                                                                                                                                • Figure 51: Biggest challenges facing pension intermediaries, January 2009
                                                                                                                                                                                                              • IFAs looking to shift the balance of their business
                                                                                                                                                                                                                • Figure 52: Key business intentions over the next 12 months, January 2009
                                                                                                                                                                                                            • The IFA: Opinions on Legislation

                                                                                                                                                                                                              • Key points
                                                                                                                                                                                                                • Over a third of IFAs believe that the RDR will have a negative impact
                                                                                                                                                                                                                  • Figure 53: Opinions on the impact of the Retail Distribution Review on IFA business, January 2009
                                                                                                                                                                                                                • Over two in five IFAs believe TCF will have no impact
                                                                                                                                                                                                                  • Figure 54: Opinions on the impact of the Treating Customers Fairly initiative on IFA business, January 2009
                                                                                                                                                                                                                • Half doubt the impact of the Thorensen Review on Generic Advice
                                                                                                                                                                                                                  • Figure 55: Opinions on the impact of the Thorensen Review into Generic Advice on IFA business, January 2009
                                                                                                                                                                                                                • Nearly half say that NPSS will have no impact on their business
                                                                                                                                                                                                                  • Figure 56: Opinions on the impact of personal accounts on IFA business, January 2009
                                                                                                                                                                                                              • Appendix – Broader Market Environment

                                                                                                                                                                                                                  • Figure 57: Projected socio-demographic composition of United Kingdom population, 2003-13
                                                                                                                                                                                                                  • Figure 58: FTSE 100 and FTSE All Share – daily index movements, January 2002-January 2009
                                                                                                                                                                                                                  • Figure 59: Monthly changes in annual inflation rates* for RPI and CPI – UK, January 2002-January 2009

                                                                                                                                                                                                              Companies Covered

                                                                                                                                                                                                              • Aegon UK
                                                                                                                                                                                                              • Association of British Insurers
                                                                                                                                                                                                              • Association of Consulting Actuaries
                                                                                                                                                                                                              • Aviva Plc
                                                                                                                                                                                                              • AXA UK plc
                                                                                                                                                                                                              • Bankhall Investment Associates Ltd
                                                                                                                                                                                                              • Barclays Capital
                                                                                                                                                                                                              • Financial Ombudsman Service
                                                                                                                                                                                                              • Financial Services Authority (The)
                                                                                                                                                                                                              • Friends Provident plc
                                                                                                                                                                                                              • Government Actuary's Department (GAD)
                                                                                                                                                                                                              • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                                              • HSBC Private Bank (UK) Limited
                                                                                                                                                                                                              • Invesco Perpetual
                                                                                                                                                                                                              • JPMorgan Invest LLC (BrownCo)
                                                                                                                                                                                                              • Legal & General Group PLC
                                                                                                                                                                                                              • Lloyds Banking Group
                                                                                                                                                                                                              • Misys Plc
                                                                                                                                                                                                              • Nielsen Media Research, Inc.
                                                                                                                                                                                                              • Norwich Union
                                                                                                                                                                                                              • Office for National Statistics
                                                                                                                                                                                                              • Pensions Commission
                                                                                                                                                                                                              • Royal Bank of Scotland Group plc
                                                                                                                                                                                                              • Schroders plc
                                                                                                                                                                                                              • Simply Biz plc
                                                                                                                                                                                                              • Skandia UK
                                                                                                                                                                                                              • Standard Life Bank Limited
                                                                                                                                                                                                              • Tenet Group Ltd
                                                                                                                                                                                                              • Winterthur Life UK Limited

                                                                                                                                                                                                              Eye on intermediaries - Pensions and Retirement Income - UK - February 2009

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