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Occupational and Group Pensions - UK - June 2012

“The occupational and group pension models that currently exist are not necessarily broken but they are far from operating at their optimum level. Pension reform is going to generate unforeseen market issues and it is how employers and providers react to these issues which will determine the future success of occupational pensions. Those involved with pension administration must ensure that the correct target audience is being selected. For the older generation it is already too late to change their pension plans, however, young to middle-aged workers offer a vast market to engage with. ”

– Stephanie Seenan, Financial Services Analyst

Some questions answered in this report include:

  • Is pension complexity encouraging people to switch to ISAs for retirement savings?
  • Auto-enrolment – who are the winners and losers?
  • Could it be time to find other retirement funding strategies?
  • Does auto-enrolment stand any chance of defusing the pension time bomb?
  • Will quantitative easing force companies to find millions to top up pension funds?
  • Can we learn lessons from the Dutch and promote ‘Defined Ambition’ schemes?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Figure 1: Forecast of new insurer-administered occupational pension premiums, 2006-16
            • Figure 2: Forecast of new GPP premiums, 2006-16
          • Scheme membership
            • Market factors
              • Auto-enrolment and pension reform
                • Quantitative easing and economic woes
                  • Regulation and Solvency II
                    • Companies, products and innovations
                      • Innovations
                        • Largest private sector schemes run by FTSE 100 companies
                          • The consumer
                            • Figure 3: Product ownership, March 2012
                          • A lack of awareness about pension options
                            • Figure 4: Employer pension scheme membership options, March 2012
                          • Pensions are valued – but there are worries about security
                            • Figure 5: Attitudes towards pensions, March 2012
                          • People place real value on a company pension
                            • Figure 6: Agreement with the statement ‘I really value my employer’s contribution to my pension scheme’, March 2012
                          • What we think
                          • Issues in the Market

                              • Is pension complexity encouraging people to switch to ISAs for retirement savings?
                                • Auto-enrolment – who are the winners and losers?
                                  • Could it be time to find other retirement funding strategies?
                                    • Does auto-enrolment stand any chance of defusing the pension time bomb?
                                      • Will quantitative easing force companies to find millions to top up pension funds?
                                        • Can we learn lessons from the Dutch and promote ‘Defined Ambition’ schemes?
                                        • Future Opportunities

                                          • How employers and insurers can hand retirement planning back to consumers
                                            • Providers can capitalise on desire for pensions by making them more flexible
                                              • The UK government will continue to work alongside pension providers in an attempt to diffuse the pensions time bomb
                                              • Internal Market Environment

                                                • Key points
                                                  • Understanding company pensions
                                                    • Auto-enrolment will means pensions for all
                                                      • Company benefits package – pensions
                                                        • Figure 7: Proportion of employers offering particular benefits as core, 2012
                                                      • How employers will deal with auto-enrolment costs
                                                        • Figure 8: How employers plan to deal with increased costs related to auto-enrolment, 2012
                                                      • Concerns over occupational pension transfers
                                                        • Solvency II impact on DB pensions
                                                          • The importance of the pensions world keeping up with technology
                                                            • Regulatory rethink
                                                              • Figure 9: Weighted average contribution rates to private sector occupational pensions schemes, by size and benefit structure and contributor, 2010
                                                            • Quantitative easing’s impact on pensions
                                                              • Concerns over NEST restrictions
                                                                • Will the uptake for auto-enrolment be as expected?
                                                                • Broader Market Environment

                                                                  • Key points
                                                                    • Economic outlook remains gloomy – not good news for pensions
                                                                      • Pension upset persists throughout the country
                                                                        • Low BoE base rate makes saving unattractive
                                                                          • Figure 10: Average annual changes in the Bank of England base rate, CPI and RPI, UK, October 2007-February 2012
                                                                        • Stability in the stock market adds confidence to the pensions market
                                                                          • Figure 11: FTSE 100 and FTSE All-Share, daily index movements, 2004-12
                                                                        • Living longer is only good news if you’ve got adequate retirement provisions in place
                                                                          • Figure 12: Cohort life expectancy at age 60, by gender, 1981-2059
                                                                        • Occupational pensions contribute 25% to average pensioner incomes
                                                                          • Figure 13: Average pensioner income, by source, at current prices, 2009/10
                                                                      • Competitive Context

                                                                        • Key points
                                                                          • Alternative retirement funding strategies
                                                                            • Figure 14: Summary of retirement funding strategies, 2012
                                                                          • Most common types of workplace pension
                                                                            • Figure 15: Framework for workplace pensions, 2012
                                                                          • Administrative costs for auto-enrolment
                                                                            • Figure 16: Administrative costs of auto-enrolment, October 2010
                                                                          • Salary sacrifice
                                                                            • GPPs continue to grow in popularity
                                                                              • Figure 17: Group personal pension business in force, 2006-10
                                                                          • SWOT Analysis

                                                                              • Figure 18: SWOT analysis
                                                                          • Who’s Innovating?

                                                                            • Key points
                                                                              • Developments in risk transfer – longevity swaps
                                                                                • Capital markets and longevity risk
                                                                                  • Corporate platforms
                                                                                    • Smartphone pensions apps
                                                                                    • Occupational Scheme Membership

                                                                                      • Key points
                                                                                        • Different stories for private and public sector occupational pension scheme membership
                                                                                          • Figure 19: Number of active occupational pension scheme members, pensions in payment and preserved entitlements – UK, by sector, 2006-10
                                                                                        • Note on double counting
                                                                                          • Number of private sector occupational scheme members decreasing
                                                                                            • Figure 20: Number of active private sector occupational scheme members – UK, 1995-2010
                                                                                          • Public sector has three times as many open DB schemes as the private sector
                                                                                            • Figure 21: Number of active members of occupational pension schemes – UK, by status, size, sector and benefit structure, 2010
                                                                                          • Auto-enrolment will see private sector membership levels shoot up amongst smaller companies
                                                                                            • Figure 22: Number of active members of private sector occupational schemes (open and closed) – UK, by size and benefit structure, 2010
                                                                                          • Two thirds of active members were contracted out in 2010
                                                                                            • Figure 23: Number of active members of private sector occupational schemes, by contracting out status, 2007-10
                                                                                          • Significant contribution rate increases were seen for private sector DB pensions in 2010
                                                                                            • Figure 24: Proportion of active members of private sector DB occupational pension schemes, by changes made to the scheme since 6 April of previous year, 2007-10
                                                                                          • Contribution rates also saw a marked increase for DC pensions in 2010
                                                                                            • Figure 25: Proportion of active members of private sector DC occupational pension schemes, by changes made to the scheme since 6 April of previous year, 2007-10
                                                                                        • Market Size and Forecast

                                                                                          • Key points
                                                                                            • Insurer-administered occupational pension market
                                                                                              • Growth across new insurer-administered occupational pension business
                                                                                                • Figure 26: New insurer-administered occupational pension business (volume and value), 2005-11
                                                                                              • Regular and single DC premiums on the rise as companies prepare for auto-enrolment
                                                                                                • Figure 27: New insurer-administered occupational pension premiums, by sub-sector, 2005-11
                                                                                              • DC market size measured for the first time
                                                                                                • Figure 28: Value of total liabilities of workplace pension schemes provided or facilitated by private sector employers, 2010
                                                                                              • DC pension membership and premium value increases
                                                                                                • Figure 29: Insurer-administered occupational pension business in force, 2006-10
                                                                                              • Risk transfer market
                                                                                                • Growth in the bulk buyout sector driven by uncertainty in DB schemes
                                                                                                  • Figure 30: In-force bulk buyout business, 2007-11
                                                                                                • Affordability and flexibility drive new bulk buyout sales
                                                                                                  • Figure 31: New pension bulk buyout sales (volume and value), 2007-11
                                                                                                • A positive future for insurer-administered schemes
                                                                                                  • Figure 32: Forecast of new insurer-administered occupational pension premiums, 2006-16
                                                                                                  • Figure 33: Value sales for new insurer-administered occupational pensions premium value, 2006-16
                                                                                                • Group personal pension market
                                                                                                  • Big employer entry into the GPP market is driving growth
                                                                                                    • Figure 34: New GPP business, 2005-11
                                                                                                    • Figure 35: Forecast of new GP premiums, 2006-16
                                                                                                    • Figure 36: Value sales for GPP premiums, 2006-16
                                                                                                  • Forecast methodology
                                                                                                  • Supply Structure and Market Share

                                                                                                    • Key points
                                                                                                      • Supply structure of workplace pensions
                                                                                                        • Figure 37: The main participants in the occupational pensions market, 2012
                                                                                                      • UK’s top employers and private sector pensions
                                                                                                        • Figure 38: The top 20 listed companies, by market capitalisation, May 2011
                                                                                                      • Insurance companies
                                                                                                        • Insurer-administer sector continues to be headed by Standard Life
                                                                                                          • Figure 39: Top 20 providers of insurance-administered occupational pension schemes, by GWP, 2009 and 2010
                                                                                                        • Individual pensions sector
                                                                                                          • Figure 40: Ranking of individual pension providers – UK, by GWP relating to total individual pension and income drawdown business, 2009 and 2010
                                                                                                        • Investment management
                                                                                                          • Pensions IFAs
                                                                                                            • Benefit consultants
                                                                                                              • Other professional services
                                                                                                              • Companies and Products

                                                                                                                    • Figure 41: Key financial data for Standard Life UK (long-term savings and investment business), 2010 and 2011
                                                                                                                  • Prudential
                                                                                                                      • Figure 42: Key financial data for Prudential, 2010 and 2011
                                                                                                                    • AEGON
                                                                                                                        • Figure 43: Key Financial data for AEGON, income by product segment 2009-11
                                                                                                                      • Legal & General
                                                                                                                          • Figure 44: Key financial data for Legal & General (Savings Business), 2009-11
                                                                                                                        • Lloyds Banking Group
                                                                                                                            • Figure 45: Key financial data for Lloyds Banking Group UK life and pensions business, present value of new business premiums, 2010 and 2011
                                                                                                                        • Brand Communication and Promotion

                                                                                                                          • Key points
                                                                                                                            • Pension providers and advisers decrease their adspend
                                                                                                                              • Figure 46: Advertising expenditure on pension products, by product category, 2008-11
                                                                                                                            • Aviva is the top pension product advertiser
                                                                                                                              • Figure 47: Top six advertisers of pension products, 2008-11
                                                                                                                            • Press advertising is the most popular medium for pensions
                                                                                                                              • Figure 48: Advertising expenditure on pension products, by media type, 2008-11
                                                                                                                          • Channels to Market

                                                                                                                            • Key points
                                                                                                                              • Group pension business is usually sold with advice
                                                                                                                                • IFAs dominate the distribution of regular-premium insurance-administered occupational pensions
                                                                                                                                  • Figure 49: Distribution breakdown of new insurance-administered occupational pension business – regular premium, 2004-11
                                                                                                                                • Single-premium business has a higher proportion of non-intermediated sales
                                                                                                                                  • Figure 50: Distribution breakdown of new insurance-administered occupational pension business – single premium, 2004-11
                                                                                                                                • IFAs control more than 90% of the GPP market
                                                                                                                                  • Figure 51: Distribution breakdown of new insurance-administered GPP business – regular and single premium, 2004-11
                                                                                                                              • Pension Ownership and Membership

                                                                                                                                • Key points
                                                                                                                                  • Some 41% of people in the UK own a pension
                                                                                                                                    • Figure 52: Savings and investment product ownership, March 2012
                                                                                                                                  • A lack of appreciation for employer contributions?
                                                                                                                                    • The pensions gap widens for part-time workers
                                                                                                                                      • Figure 53: Pension ownership, by employment status, March 2012
                                                                                                                                    • Majority of people do not have access to a pension through their employer
                                                                                                                                      • Figure 54: Pension scheme membership options from employer, March 2012
                                                                                                                                    • Only a quarter of full-time workers have the option of a DC scheme with employer contributions
                                                                                                                                      • Figure 55: Pension scheme membership options, by Employment status
                                                                                                                                    • Women less likely to have access to a pension scheme through employer
                                                                                                                                      • Figure 56: Pension scheme membership options from employer, by gender, March 2012
                                                                                                                                    • Younger people more likely to be unsure of the pension options
                                                                                                                                      • Figure 57: Pension scheme membership options from employer, by age, March 2012
                                                                                                                                    • Those unsure about their pension provisions show lack of savings and investment ownership
                                                                                                                                      • Figure 58: Savings and investment product ownership, by pension scheme membership options from employer, March 2012
                                                                                                                                    • Just over a fifth of occupational scheme members dabble in stockmarket investments
                                                                                                                                      • Figure 59: Savings and investment product ownership, by asset class held, March 2012
                                                                                                                                  • Attitudes towards Occupational and Group Pensions

                                                                                                                                    • Key points
                                                                                                                                      • Pensions are important to employees but many are concerned about their long-term security
                                                                                                                                        • Figure 60: Attitudes towards occupational and group pensions, March 2012
                                                                                                                                      • 47% of the self-employed believe that pension alternatives are a better way to save for retirement
                                                                                                                                        • Figure 61: There are better ways to save for retirement, by Employment status
                                                                                                                                      • Nearly half of full-time workers want a good pension scheme from a prospective new employer
                                                                                                                                        • Figure 62: If I were looking for a new job I would look for one with a good pension scheme, by Employment status
                                                                                                                                      • Full-time workers are more likely than average to want a pay rise over employer pension contributions
                                                                                                                                        • Figure 63: I’d rather have a pay rise than pension contributions, by Employment status
                                                                                                                                      • DB pension owners less concerned about the security of their pension
                                                                                                                                        • Figure 64: Savings and investment product ownership, by agreement with statement ‘I am concerned about the security of my pension’, March 2012
                                                                                                                                      • DB owners recognise the value of their pension
                                                                                                                                        • Figure 65: Pension scheme membership options from employer, by agreement with the statement ‘There are better ways to save for retirement than in a pension’, March 2012
                                                                                                                                      • People who believe there are better ways to save for retirement don’t back it up with product ownership
                                                                                                                                        • Figure 66: Savings and investment product ownership, by agreement with statement ‘There are better ways to save for retirement than in a pension’, March 2012
                                                                                                                                      • 25-34-year-olds tend to be the ones who believe that there are better ways to save than with a pension
                                                                                                                                        • Figure 67: Agreement with statement ‘There are better ways to save for retirement than in a pension’, by age, March 2012
                                                                                                                                      • Those with no current access to a pension through their employer would not value one when moving jobs
                                                                                                                                        • Figure 68: Pension scheme membership options from employer, by agreement with the statement ‘If I were looking for a new job I would look for one with a good pension scheme’, March 2012
                                                                                                                                      • Those with an employer pension scheme are less concerned about the security of their pension
                                                                                                                                        • Figure 69: Pension scheme membership options from employer, by agreement with the statement ‘I am concerned about the security of my pension’, March 2012
                                                                                                                                      • People who don’t currently have a pension through their employer would rather get a pay rise then a pension
                                                                                                                                        • Figure 70: Pension scheme membership options from employer, by agreement with the statement ‘I'd rather my employer gave me a pay rise rather than contribute to a pension scheme on my behalf’, March 2012
                                                                                                                                    • Occupational and Group Pension Activity

                                                                                                                                      • Key points
                                                                                                                                        • Alarming number of people are unsure about what their employer offers in terms of pensions
                                                                                                                                          • Figure 71: Occupational or company pension activity, March 2012
                                                                                                                                        • 17% of full-time employees believe that pension schemes differ according to seniority
                                                                                                                                          • Figure 72: My employer offers a better pension scheme to more senior employees, by employment status
                                                                                                                                        • Final salary schemes closed to 17% of full-time employees
                                                                                                                                          • Figure 73: My employer has closed its final salary scheme to new entrants, by employment status
                                                                                                                                        • Nearly a fifth of full-time workers have access to professional financial advice at work
                                                                                                                                          • Figure 74: My employer gives me access to professional financial advice, by employment status
                                                                                                                                        • People who have recently reduced or stopped pension contributions have above-average ownership of stockmarket investments
                                                                                                                                          • Figure 75: Savings and investment product ownership, by response to ‘I’ve recently stopped paying into my company pension or reduced my pension contributions’, March 2012
                                                                                                                                        • Other investments gaining popularity amongst those whose companies have closed off DB schemes
                                                                                                                                          • Figure 76: Savings and investment product ownership, by response to ‘My employer has closed its final-salary pension scheme to new entrants within the last few years’, March 2012
                                                                                                                                        • Savings and investment product ownership higher when people have access to financial advice through employer
                                                                                                                                          • Figure 77: Savings and investment product ownership, by response to ‘My employer gives me access to professional financial advice’, March 2012
                                                                                                                                        • Companies offering financial advice are more generous with pension options
                                                                                                                                          • Figure 78: Pension scheme membership options from employer, by response to ‘My employer gives me access to professional financial advice’, March 2012
                                                                                                                                        • People whose employers offer alternative retirement savings products believe that pensions are not the best way to save for retirement
                                                                                                                                          • Figure 79: Attitudes towards occupational and group pensions, by response to ‘My employer offers non-pension savings products’, March 2012
                                                                                                                                        • Some 58% of people who have stopped paying into a company pension would still seek a good pension in a new job
                                                                                                                                          • Figure 80: Attitudes towards occupational and group pensions, by response to ‘I’ve recently stopped paying into my company pension or reduced my pension contributions’, March 2012
                                                                                                                                        • Closing final-salary schemes makes employees worry about their pension security
                                                                                                                                          • Figure 81: Attitudes towards occupational and group pensions, by response to ‘My employer has closed its final-salary pension scheme to new entrants within the last few years’, March 2012
                                                                                                                                        • People value employer contributions even in companies where there are differing levels of pension schemes
                                                                                                                                          • Figure 82: Attitudes towards occupational and group pensions, by response to ‘My employer offers a better pension scheme to more senior employees’, March 2012
                                                                                                                                      • Appendix – Market Size

                                                                                                                                          • Figure 83: Additional best-case/worst-case table for GPP premiums, 2009-16
                                                                                                                                          • Figure 84: Additional best-case/worst-case table for new insurer-administered occupational pension premiums, 2009-16
                                                                                                                                      • Appendix – Pension Ownership and Membership

                                                                                                                                          • Figure 85: Most popular savings and investment product ownership, by demographics, March 2012
                                                                                                                                          • Figure 86: Next most popular savings and investment product ownership, by demographics, March 2012
                                                                                                                                          • Figure 87: Other savings and investment product ownership, by demographics, March 2012
                                                                                                                                          • Figure 88: Pension scheme membership options from employer, by demographics, March 2012
                                                                                                                                      • Appendix – Attitudes towards Occupational and Group Pensions

                                                                                                                                          • Figure 89: Agreement with the statements ‘There are better ways to save for retirement than in a pension’ and ‘If I were looking for a new job I would look for one with a good pension scheme’, by demographics, March 2012
                                                                                                                                          • Figure 90: Agreement with the statements ‘I am concerned about the security of my pension’ and ‘I'd rather my employer gave me a pay rise rather than contribute to a pension scheme on my behalf’, by demographics, March 2012
                                                                                                                                          • Figure 91: Agreement with the statement ‘I really value my employer's contribution to my pension scheme’, by demographics, March 2012
                                                                                                                                      • Appendix – Occupational and Group Pension – Behaviours

                                                                                                                                          • Figure 92: Response to ‘My employer offers non-pension savings products’, by demographics, March 2012
                                                                                                                                          • Figure 93: Response to ‘My employer offers a better pension scheme to more senior employees’, by demographics, March 2012
                                                                                                                                          • Figure 94: Response to ‘I’ve recently stopped paying into my company pension or reduced my pension contributions’, by demographics, March 2012
                                                                                                                                          • Figure 95: Response to ‘My employer has closed its final-salary pension scheme to new entrants within the last few years’, by demographics, March 2012
                                                                                                                                          • Figure 96: Response to ‘My employer gives me access to professional financial advice’, by demographics, March 2012

                                                                                                                                      Companies Covered

                                                                                                                                      • Aegon UK
                                                                                                                                      • Clerical Medical Investment Group Ltd
                                                                                                                                      • Legal & General Assurance Society Limited
                                                                                                                                      • Lloyds Banking Group
                                                                                                                                      • Lloyds TSB Insurance
                                                                                                                                      • Prudential Financial, Inc
                                                                                                                                      • Scottish Widows Bank plc

                                                                                                                                      Occupational and Group Pensions - UK - June 2012

                                                                                                                                      £1,995.00 (Excl.Tax)