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Occupational and Group Pensions - UK - June 2014

“So far, auto-enrolment has proved a success, but the true test is still ahead. The insurer-administered occupational and group pension sectors are primed for significant expansion, as small and medium-sized employers become subject to new pension duties and millions of new savers are added to the (largely DC) pension pool. However, the transition to full auto-enrolment represents a huge administrative challenge, raising concerns about whether there will be enough capacity in the market to meet the volume of demand.”
–    Sarah Hitchcock, Senior Analyst – Financial Services

This report looks at the following issues:

  • So far auto-enrolment proves a success – but there are no guarantees when it comes to retirement outcomes
  • Develop simplified and self-service solutions to avoid a ‘capacity crunch’
  • Online tools help to foster member engagement and understanding

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Table of contents

  1. Introduction

      • Product definition
        • Figure 1: Framework for workplace pensions – Private sector
      • Abbreviations
      • Executive Summary

          • The market
            • Occupational pension sector set for significant expansion
              • Figure 2: New insurer-administered occupational (trust-based) pension premiums – Fan chart, 2009-19
            • The group pension sector will similarly attract strong new business inflows
              • Figure 3: New group (contract-based) pension premiums – Fan chart, 2009-19
            • Occupational schemes
              • Market factors
                • Early-stage auto-enrolment proves a success…
                  • … but there are concerns about supply problems as we move towards the latter stages
                    • Shift away from final salary continues
                      • Bulk buyouts remain a key feature of the pension landscape
                        • Recent regulatory developments
                          • Trends in asset allocation
                            • Company, brands and innovation
                              • Leading pension providers
                                • Product innovation
                                  • Distribution trends
                                    • The consumer
                                      • Penetration of workplace versus individual pensions
                                        • Figure 4: Proportion of employees who have a pension and proportion who are currently making contributions, April 2014
                                      • Contribution timeframe
                                        • Figure 5: Length of time contributing to a workplace pension, April 2014
                                      • Pension awareness and engagement
                                        • Recent contribution activity
                                          • Priority given to retirement saving by employees
                                            • Figure 6: Level of priority given to retirement saving, April 2014
                                          • Confidence in level of self-provision
                                            • Figure 7: Level of confidence in retirement saving activity, April 2014
                                          • Barriers to take-up
                                            • Figure 8: Reasons for not contributing to a pension, April 2014
                                          • What we think
                                          • Issues and Insights

                                              • So far auto-enrolment proves a success – but there are no guarantees when it comes to retirement outcomes
                                                • The facts
                                                  • The implications
                                                    • Develop simplified and self-service solutions to avoid a ‘capacity crunch’
                                                      • The facts
                                                        • The implications
                                                          • Online tools help to foster member engagement and understanding
                                                            • The facts
                                                              • The implications
                                                              • Trend Application

                                                                • Trend: Help Me Help Myself
                                                                  • Trend: Guided Choice
                                                                    • Trend: Generation Next
                                                                    • Market Drivers

                                                                      • Key points
                                                                        • Workplace auto-enrolment boosts pension participation
                                                                          • Figure 9: Proportion of employees who have a private pension, January 2012 and April 2014
                                                                        • Opt-out rates lower than expected
                                                                          • Figure 10: Auto-enrolment registration – Key data, April 2014
                                                                        • Cap on default fund charges in DC pensions…
                                                                          • … and greater transaction cost transparency
                                                                            • ABI members agree to disclose workplace pension fees upfront
                                                                              • One in five private sector workers are contributing to a DB scheme
                                                                                • Figure 11: Proportion of employees contributing to a private pension, by type and sector, April 2014
                                                                              • Public Service Pensions Act 2013 and the end of final salary pensions
                                                                                • PPF now has £16 billion in invested assets
                                                                                  • Increase in DC membership of insurer-administered schemes
                                                                                    • Figure 12: Number of insurer-administered occupational pension scheme members and group pension policies in force, 2008-12
                                                                                  • Reducing pension liabilities: the buyout route
                                                                                    • The risk-transfer market continues to expand
                                                                                      • Figure 13: In-force bulk buyout/buy-in business, 2009-12
                                                                                    • In 2012, the self-administered sector accounted for 71% of assets held in funded occupational schemes
                                                                                      • Figure 14: Value of assets in funded pensions in real terms, 2007-12
                                                                                    • UK pension funds continue to decrease weighting in equities in favour of bonds and alternative assets
                                                                                      • Changes to pension decumulation rules
                                                                                        • Government moves to block public sector pension transfers to prevent ‘mass exit’
                                                                                        • Occupational Scheme Membership

                                                                                          • Key points
                                                                                            • Active membership in occupational trust-based schemes continues to decline
                                                                                              • Figure 15: Number of active occupational pension scheme members, pensions in payment and preserved entitlements – UK, by sector, 2009-12
                                                                                            • Note on double counting
                                                                                              • One in seven private sector workers in the UK are active members of an occupational scheme
                                                                                                • Scheme numbers stabilise
                                                                                                  • Figure 16: Number of private sector occupational pension schemes, 2007-12
                                                                                                • Nearly half of all members in ‘open’ private sector schemes are DC arrangements
                                                                                                  • Figure 17: Number of active members of occupational pension schemes – UK, by status, size, sector and benefit structure, 2012
                                                                                                • Contribution rates are much lower for DC than DB schemes
                                                                                                  • Figure 18: Weighted average contribution rates to private sector occupational pension schemes, by size and benefit structure, 2009 versus 2012
                                                                                              • Market SWOT Analysis

                                                                                                  • Figure 19: The occupational and group pensions market– SWOT analysis, 2014
                                                                                              • Who’s Innovating?

                                                                                                • Key points
                                                                                                  • Focus switches to SMEs
                                                                                                    • The rise of the master trust
                                                                                                      • NAPF and Dalmore Capital introduce first PIP funds
                                                                                                      • Market Size and Forecast – Trust-based Schemes

                                                                                                        • Key points
                                                                                                          • Lump-sum investment drives new business growth
                                                                                                            • Figure 20: New insurer-administered occupational pension business (volume and value), 2009-13
                                                                                                          • Number of contracts versus lives covered
                                                                                                            • TIPs and bulk buyouts represent the largest share of new business
                                                                                                              • Figure 21: New insurer-administered occupational pension premiums, by sub-sector, 2009-13
                                                                                                            • Occupational pension sector set for further growth
                                                                                                              • Figure 22: Forecast of new insurer-administered occupational pension premiums – Fan chart, 2009-19
                                                                                                              • Figure 23: Forecast of new insurer-administered occupational pension business, 2014-19
                                                                                                            • Forecast methodology
                                                                                                              • Fan chart explanation
                                                                                                              • Market Size and Forecast – Contract-based Schemes

                                                                                                                • Key points
                                                                                                                  • New group pension sales soar
                                                                                                                    • Figure 24: New group pension business (volume and value), 2009-13
                                                                                                                  • Group pension sector will continue to experience strong demand
                                                                                                                    • Figure 25: Forecast of new group pension premiums – Fan chart, 2009-19
                                                                                                                    • Figure 26: Forecast of new group pension business, 2014-19
                                                                                                                  • Forecast methodology
                                                                                                                    • Fan chart explanation
                                                                                                                    • Supply Structure and Provider Rankings

                                                                                                                      • Key points
                                                                                                                        • Supply structure of workplace pensions
                                                                                                                          • Figure 27: The main participants in the occupational and group pension market, 2014
                                                                                                                        • Master trusts
                                                                                                                          • NEST
                                                                                                                            • The People’s Pension
                                                                                                                              • Now: Pensions
                                                                                                                                • Employers
                                                                                                                                  • FTSE 100 constituents run some of the largest occupational pension schemes
                                                                                                                                    • Figure 28: The top 20 listed companies, by market capitalisation, May 2014
                                                                                                                                  • Private sector pension fund deficit widens
                                                                                                                                    • Insurance companies
                                                                                                                                      • Standard Life retains market-leader position in the insurer-administered sector
                                                                                                                                        • Figure 29: Top ten providers of insurer-administered occupational pension schemes, by gross premiums, 2012
                                                                                                                                      • Aviva leads the way in the individual pension sector
                                                                                                                                        • Legal & General is the largest pension fund manager, by assets under management
                                                                                                                                          • Figure 30: Top ten UK insurance companies, by funds held in insurer-administered pension schemes, 2012
                                                                                                                                        • Investment managers
                                                                                                                                          • Pension IFAs
                                                                                                                                            • Benefit consultants
                                                                                                                                              • Other professional services
                                                                                                                                              • Companies and Products

                                                                                                                                                  • Aviva
                                                                                                                                                    • Legal & General
                                                                                                                                                      • Lloyds Banking Group
                                                                                                                                                        • Prudential
                                                                                                                                                          • Standard Life
                                                                                                                                                          • Brand Communication and Promotion

                                                                                                                                                            • Key points
                                                                                                                                                              • The pensions industry invests a limited amount on consumer advertising
                                                                                                                                                                • Figure 31: Advertising expenditure on pension and annuity products, 2009/10-13/14
                                                                                                                                                              • The DWP was responsible for a large chunk of recent pension adpsend
                                                                                                                                                                • Figure 32: Top ten advertisers of pension products, 2011/12-13/14
                                                                                                                                                              • Most pension adspend relates to TV and press advertising
                                                                                                                                                                • Figure 33: Proportional distribution of adspend on pension products, by media type, 2011/12-13/14
                                                                                                                                                              • A note on adspend
                                                                                                                                                              • Channels to Market

                                                                                                                                                                • Key points
                                                                                                                                                                  • Most new occupational and group pension sales come via IFAs…
                                                                                                                                                                    • Figure 34: Proportional distribution of total new regular-premium insurer-administered occupational and group pension business, by sales channel, 2013
                                                                                                                                                                  • … but in value terms, a significant proportion of new business is generated via the non-advised channel
                                                                                                                                                                    • Figure 35: Proportional distribution of total new single-premium insurer-administered occupational and group pension business, by sales channel, 2013
                                                                                                                                                                • Pension Ownership and Participation Among Workforce

                                                                                                                                                                  • Key points
                                                                                                                                                                    • Survey background
                                                                                                                                                                      • Around three in four employees work in the private sector
                                                                                                                                                                        • Figure 36: Sector and size of employer worked for, April 2014
                                                                                                                                                                      • Over half of all employees are contributing to a workplace pension
                                                                                                                                                                        • Figure 37: Proportion of employees who have a pension and proportion who are currently making contributions, April 2014
                                                                                                                                                                      • Pension participation is lowest among small firms
                                                                                                                                                                        • Figure 38: Proportion of employees who are contributing to a pension, by sector/size of employer, April 2014
                                                                                                                                                                      • There remains a noticeable gender gap
                                                                                                                                                                        • Figure 39: Proportion of employees who are contributing to a pension, by gender and working status of employee, April 2014
                                                                                                                                                                    • Length of Time Contributing to Workplace Pension

                                                                                                                                                                      • Key points
                                                                                                                                                                        • Around one in four workplace pension savers have only started making contributions within the past two years
                                                                                                                                                                          • Figure 40: Length of time contributing to a workplace pension, April 2014
                                                                                                                                                                        • Some small firms are auto-enrolling staff well ahead of their staging dates
                                                                                                                                                                          • Figure 41: Length of time contributing to a workplace pension, by sector/size of employer, April 2014
                                                                                                                                                                        • Correlation with age will strengthen with auto-enrolment
                                                                                                                                                                          • Figure 42: Length of time contributing to a workplace pension, by age of employee, April 2014
                                                                                                                                                                      • Pension Fund Awareness and Engagement

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Around one in seven workplace pension savers are not receiving an annual benefit statement
                                                                                                                                                                              • Figure 43: Agreement with statements about own workplace pension, April 2014
                                                                                                                                                                            • Three in five workplace pension savers know roughly what their pension fund is worth
                                                                                                                                                                              • 29% have increased their contributions in the past year
                                                                                                                                                                              • Financial Priority Given to Retirement Saving

                                                                                                                                                                                • Key points
                                                                                                                                                                                  • 72% of employees are making retirement saving a medium-to-high financial priority
                                                                                                                                                                                    • Figure 44: Level of priority given to retirement saving, April 2014
                                                                                                                                                                                  • Lifestage factors can get in the way of retirement saving
                                                                                                                                                                                    • Figure 45: Level of priority given to retirement saving, by age of employee, April 2014
                                                                                                                                                                                  • The level of importance afforded retirement saving is influenced by the type of employer
                                                                                                                                                                                    • Figure 46: Level of priority given to retirement saving, by sector and size of employer, April 2014
                                                                                                                                                                                  • Owning a pension increases the level of priority given to retirement saving
                                                                                                                                                                                    • Figure 47: Level of priority given to retirement saving, by pension ownership, April 2014
                                                                                                                                                                                  • Less than half of all UK employees are confident they are saving enough for their retirement
                                                                                                                                                                                    • Figure 48: Level of confidence in retirement saving activity, April 2014
                                                                                                                                                                                  • Recent changes to public sector pensions may be have an adverse effect on confidence levels
                                                                                                                                                                                    • Figure 49: Level of confidence in retirement saving activity, by sector and size of employer, April 2014
                                                                                                                                                                                • Reasons for Non Contribution

                                                                                                                                                                                  • Key points
                                                                                                                                                                                    • Affordability remains the top barrier to pension saving
                                                                                                                                                                                        • Figure 50: Reasons for not contributing to a pension, April 2014
                                                                                                                                                                                      • Access barriers are most likely to affect employees of small firms
                                                                                                                                                                                        • Figure 51: Reasons for not contributing to a pension, by type of employer, April 2014
                                                                                                                                                                                    • Appendix – Additional Product Information

                                                                                                                                                                                      • Framework for private pensions
                                                                                                                                                                                        • Figure 52: Types of private pension provision in the UK
                                                                                                                                                                                      • Types of workplace pension
                                                                                                                                                                                        • Occupational schemes
                                                                                                                                                                                          • Defined-benefit (salary-related) schemes
                                                                                                                                                                                            • Defined-contribution (money-purchase) schemes
                                                                                                                                                                                              • NEST
                                                                                                                                                                                                • Contract-based workplace pensions
                                                                                                                                                                                                  • Other definitions
                                                                                                                                                                                                  • Appendix – Pension Regulation

                                                                                                                                                                                                    • Regulation of workplace pension schemes
                                                                                                                                                                                                      • Recent milestones in pension reform
                                                                                                                                                                                                        • Auto-enrolment
                                                                                                                                                                                                            • Figure 53: Amount of auto-enrolment contributions, 2014
                                                                                                                                                                                                          • Retail Distribution Review
                                                                                                                                                                                                            • Ban on consultancy charging
                                                                                                                                                                                                              • Switch to CPI for occupational pensions
                                                                                                                                                                                                                • More changes on the horizon
                                                                                                                                                                                                                  • Single tier state pension
                                                                                                                                                                                                                    • Closure of state second pension
                                                                                                                                                                                                                      • General issues affecting the wider pension industry
                                                                                                                                                                                                                      • Appendix – Market Size and Forecast

                                                                                                                                                                                                                        • Trust-based schemes – best- and worst-case scenarios
                                                                                                                                                                                                                          • Figure 54: Forecast of new insurer-administered occupational pension premiums – Best- and worst-case scenarios, at current prices, 2014-19
                                                                                                                                                                                                                        • Contract-based schemes – best- and worst-case scenarios
                                                                                                                                                                                                                          • Figure 55: Forecast of new group pension premiums – Best- and worst-case scenarios, at current prices, 2014-19
                                                                                                                                                                                                                        • Forecast methodology
                                                                                                                                                                                                                          • Fan chart explanation
                                                                                                                                                                                                                          • Appendix – Pension Ownership and Participation Among Workforce

                                                                                                                                                                                                                              • Figure 56: Sector and size of employer, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 57: Proportion of employees who have pension, by type of employer, April 2014
                                                                                                                                                                                                                              • Figure 58: Proportion of employees who have a pension, by type of pension and demographics, April 2014
                                                                                                                                                                                                                              • Figure 59: Proportion of employees who are contributing to a pension, by type of pension and demographics, April 2014
                                                                                                                                                                                                                          • Appendix – Length of Time Contributing to Workplace Pension

                                                                                                                                                                                                                              • Figure 60: Length of time contributing to a workplace pension, by demographics, April 2014
                                                                                                                                                                                                                          • Appendix – Pension Fund Awareness and Engagement

                                                                                                                                                                                                                              • Figure 61: Agreement with statement, ‘I receive information about my pension at least once a year’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 62: Agreement with statement ‘I can call a telephone helpline if I have any questions about my pension’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 63: Agreement with statement ‘I know the current value of my pension’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 64: Agreement with statement ’I have a good idea of what pension charges/commission I pay’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 65: Agreement with statement ‘I know how much my pension fund will be worth when I retire’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 66: Agreement with statement ‘I have a good idea of how my pension fund is invested’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 67: Agreement with statement ‘My employer will arrange for me to talk to a financial adviser if I need advice about my pension options’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 68: Agreement with statement ‘I have online access to my pension so I can check what it is worth and how it’s performing’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 69: Agreement with statement ‘I can make changes to my pension online’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 70: Agreement with statement ‘Within the past year I’ve increased my pension contributions’, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 71: Agreement with statements relating to own workplace pension – I plan to restart or increase my pension contributions within the coming year, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 72: Agreement with statement ‘Within the past year I’ve reduced or stopped my pension contributions’, by demographics, April 2014
                                                                                                                                                                                                                          • Appendix – Priority Given to Retirement Saving

                                                                                                                                                                                                                              • Figure 73: Level of priority given to retirement saving, by demographics, April 2014
                                                                                                                                                                                                                              • Figure 74: Level of confidence in retirement saving activity, by demographics, April 2014
                                                                                                                                                                                                                          • Appendix – Reasons for Non Contribution

                                                                                                                                                                                                                              • Figure 75: Reasons for not contributing to a pension, by demographics, April 2014

                                                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                                                          • Aviva Plc
                                                                                                                                                                                                                          • BAE SYSTEMS plc
                                                                                                                                                                                                                          • Clerical Medical Investment Group Ltd
                                                                                                                                                                                                                          • Legal & General Assurance Society Limited
                                                                                                                                                                                                                          • Lloyds Banking Group
                                                                                                                                                                                                                          • Lucida
                                                                                                                                                                                                                          • M&G Group
                                                                                                                                                                                                                          • Prudential plc
                                                                                                                                                                                                                          • Scottish Widows Bank plc
                                                                                                                                                                                                                          • Standard Life Assurance Company

                                                                                                                                                                                                                          Occupational and Group Pensions - UK - June 2014

                                                                                                                                                                                                                          £1,995.00 (Excl.Tax)