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Pensions Intermediaries - UK - January 2010

This report provides an overview of the key issues facing pension and retirement income intermediaries. By drawing on a range of trade, consumer and desk research it examines the impact of the evolving regulatory environment as well as changing market conditions. The final section of the report presents the finds of Mintel’s exclusively commissioned IFA survey, conducted by NMG.

  • Although the FSA’s determination to raise qualification standards for advisers by the end of 2012 will continue to push many smaller advice firms out of business, it will finally establish advisers as a trustworthy profession. Firms that raise their own standards sooner than later will be best placed to win new business.
  • The demise of traditional workplace pension provision will increase demand for individual pension products and advice. As of January 2010, just five FTSE 100 companies continue to offer new employees final salary pension schemes.
  • Pension intermediaries could be making greater efforts to indentify and encourage individuals with significant levels of protected rights funds to transfer their money into a SIPP. There is an estimated £100 billion (£60,000 per person) in accrued protect rights funds now eligible to be transferred into any type of SIPP.
  • While many are speculating that the FSA’s goal to eliminate commission bias will result in more IFAs targeting the high-net worth (who can best afford paying adviser fees), there are only a limited number of HNW to go around. Advisers will be much better off targeting the larger middle section of the market with an affordable proposition.
  • The fees charged for independent advice (currently ranging from between £75 to £250 per hour) need to be made more affordable in order to ensure wider access to truly independent advice. According to research sponsored by Aviva, just 3% of consumers are willing to pay over £100 per hour for independent advice while 17% would pay £25 per hour.
  • The 2012 launch of the National Employment Savings Scheme (NEST) will greatly increase pension participation in the UK. Pension advisers should welcome this as they should benefit from more demand for retirement planning advice.

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Table of contents

  1. Issues in the Market

      • Key Issues
        • Abbreviations
        • Future Opportunities

          • Opportunities for advisers in the middle market
            • Direct sales should grow as adviser numbers decline
              • More may be attracted to the IFA profession post RDR implementation
                • Advisers will be key in raising awareness about protected rights
                • Market in Brief

                  • The number of directly authorised intermediaries still in decline
                    • Figure 1: Number of FSA directly authorised retail intermediary firms, by primary category, January 2006-September 2009
                  • Despite tough economic conditions opportunities for advisers exist
                    • Scope for growth in workplace pensions
                      • FSA regulatory environment unfriendly to small firms
                        • Pension and retirement income distribution overview
                          • Market size – individual and group pensions
                            • In 2009 IFAs generated 79% of all new individual pension APE premiums
                              • Figure 2: New APE* premiums into individual pensions, by type of pension and distribution channel, 2009 (est)
                            • IFAs generate majority of new annuity and income drawdown business
                              • Key IFA research survey results
                                • Client advice and expectations
                                  • Prospects and future business intentions
                                    • Opinions on regulation and Personal Accounts
                                    • Internal Market Environment

                                      • Key points
                                        • Workplace pension provision continues to decline
                                          • Individual pension industry could benefit over the long term
                                            • Auto-enrolment will greatly boost pension participation
                                              • Pension intermediaries and NEST
                                                • NEST should boost annuity market over the long term
                                                  • Transfer levels decline after FSA criticism of pension switching advice
                                                    • MW Pensions SIPP fraud case raises the issue of trust
                                                      • Only 3% of FOS complaints are about IFAs
                                                        • Figure 3: Financial services firms complained about, by sector, 2008/09
                                                      • Any type of SIPP can now hold protected rights funds
                                                        • Intermediaries are key in raising awareness
                                                          • Pension tax relief for wealthy to be pulled back from April 2011
                                                            • Concerns about the inconsistent government approach to pensions…
                                                              • …but potential benefits for advisers
                                                              • FSA Regulatory Environment

                                                                • Key points
                                                                  • Market structure for financial advice
                                                                    • Figure 4: Basic overview of market for financial advice
                                                                  • The Retail Distribution Review
                                                                    • Defining ‘independent’ and ‘restricted’ advice
                                                                      • Figure 5: Proposed regulatory landscape 2013
                                                                    • The elimination of commission bias
                                                                      • Ongoing charges will be possible
                                                                        • No revision of legacy business will be necessary
                                                                          • Impact on product providers
                                                                            • Advisers to use 'consultancy charging’ when selling GPPs
                                                                              • Aviva poll reveals consumer opposition to paying fees for advice
                                                                                • Raising prudential requirements ensures continued IFA consolidation
                                                                                  • RDR will definitely happen, Tories can only delay it
                                                                                    • Advisory firms generally welcome RDR proposals
                                                                                      • Some sceptical about RDR creating new opportunities for advisers
                                                                                        • Money Guidance Service could be fully introduced during 2010
                                                                                          • Impact on financial advice market
                                                                                            • Treating Customers Fairly
                                                                                              • Impact on IFAs
                                                                                                • FSA proposes to lower the minimum fee for IFAs by 45%
                                                                                                • Broader Market Environment

                                                                                                  • Key points
                                                                                                    • Retirement income needs to rise to keep up with increasing longevity
                                                                                                      • Figure 6: Cohort life expectancy at age 60, by gender, 1981-2056
                                                                                                    • Pension intermediaries well placed to benefit from this trend
                                                                                                      • UK set for an extended period of slow economic growth
                                                                                                        • Consumer focus shifting toward savings
                                                                                                          • Figure 7: Total PDI, consumer expenditure and savings ratio, at current prices, 2004-13
                                                                                                        • Stock markets have rallied in 2009…
                                                                                                          • Figure 8: FTSE 100 and FTSE All Share – daily index movements, December 2003-December 2009
                                                                                                        • … but confidence in pensions is still damaged
                                                                                                          • Uncertainty can be good for advice business
                                                                                                            • Rising taxes and inflation should increase demand for pension tax relief
                                                                                                              • Figure 9: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, December 2005-December 2009
                                                                                                          • Strengths and Weaknesses

                                                                                                              • Figure 10: Market for pension related advice – SWOT analysis, 2010
                                                                                                          • Who’s Innovating

                                                                                                            • Key Points
                                                                                                              • IFA Life – social networking for advisers
                                                                                                                • Scot Life introduces new pension business tracker for advisers
                                                                                                                  • Selectapension.com launches income drawdown comparison system
                                                                                                                    • Online real-time annuity underwriting from Partnership Assurance
                                                                                                                      • Zurich providing adviser support with launch of Zurich4pensions.co.uk
                                                                                                                        • SimplyBiz launches premium service for large IFA firms
                                                                                                                          • RDR support via Sesame
                                                                                                                          • The Intermediary Marketplace

                                                                                                                            • Key points
                                                                                                                              • The number of directly authorised intermediaries continues to decline
                                                                                                                                • Figure 11: Number of FSA directly authorised retail intermediary firms, by primary category, January 2006 to September 2009
                                                                                                                              • The financial advice sector has held up relatively well…
                                                                                                                                • … but the RDR could push IFAs out of the financial advice sector
                                                                                                                                  • The number of appointed representatives continues to rise
                                                                                                                                    • Figure 12: Number of directly authorised financial advice firms, year to September 2006-09
                                                                                                                                • Distribution Overview

                                                                                                                                  • Key points
                                                                                                                                    • Most new personal pension business driven by IFAs
                                                                                                                                      • EBCs are active in group pension sales
                                                                                                                                        • IFAs responsible for over three quarters of individual pension business
                                                                                                                                          • Figure 13: New APE* premiums into individual pensions, by distribution channel, 2005-09
                                                                                                                                        • The share of IFA new sales has declined as more go direct
                                                                                                                                          • Figure 14: Proportional distribution of new pension annuity premiums, by sales channel, 2005-09
                                                                                                                                        • IFAs increase their share of new Income drawdown business
                                                                                                                                          • Figure 15: Proportional distribution of new income drawdown premiums, by sales channel, 2005-09
                                                                                                                                        • Individual pension distribution – detailed breakdown
                                                                                                                                          • Personal pensions
                                                                                                                                            • Figure 16: Proportional distribution of new APE* premiums into personal pensions, by distribution channel, 2005-09
                                                                                                                                          • Group personal pensions
                                                                                                                                            • Figure 17: Proportional distribution of new APE* premiums into group personal pensions, by distribution channel, 2005-09
                                                                                                                                          • Individual stakeholder pensions
                                                                                                                                            • Figure 18: Proportional distribution of new APE* premiums into individual stakeholder pensions, by distribution channel, 2005-09
                                                                                                                                          • Company-sponsored stakeholder pensions
                                                                                                                                            • Figure 19: Proportional distribution of new APE* premiums into company sponsored stakeholder pensions, by distribution channel, 2005-09
                                                                                                                                          • SIPPs
                                                                                                                                            • Figure 20: Proportional distribution of new APE* premiums into SIPPs, by distribution channel, 2005-09
                                                                                                                                        • Market Size – Individual and Group Pensions

                                                                                                                                          • Key points
                                                                                                                                            • Two consecutive years of decline in new individual pension business
                                                                                                                                              • Figure 21: New individual pension premiums, by product type, 2005-09
                                                                                                                                            • Slowdown in transfer business drives down new premiums
                                                                                                                                              • Figure 22: Single premium transfer business, 2006-09
                                                                                                                                            • Number of policies in force declines in 2008
                                                                                                                                              • Figure 23: Total number of policies and regular premiums from individual pensions business in force, by pension type, 2003-07
                                                                                                                                          • Market Segmentation by Type of Intermediary – Individual and Group Pensions

                                                                                                                                            • Key Points
                                                                                                                                              • IFAs generated 79% of all new APE Premiums in 2009
                                                                                                                                                • Figure 24: New APE* premiums into individual pensions, by type of pension and distribution channel, 2009 (est)
                                                                                                                                              • IFA share of new single premiums down nearly a quarter in 2009
                                                                                                                                                • Figure 25: Value of new premiums sold through independent intermediaries, by type of premium and pension, 2005-09
                                                                                                                                              • Tie agents show best overall performance in a weak market
                                                                                                                                                • Figure 26: Value of new premiums sold through single-tie agents, by type of premium and pension, 2005-09
                                                                                                                                              • £292 million in new APE sales generated via bancassurance in 2009
                                                                                                                                                • Figure 27: Value of new premiums sold through bancassurance, by type of premium and pension, 2005-09
                                                                                                                                              • Non-intermediated new APE sales down more than a fifth
                                                                                                                                                • Figure 28: Value of non-intermediated new premiums, by type of premium and pension, 2005-09
                                                                                                                                            • Market Size – Annuities and Income Drawdown

                                                                                                                                              • Key points
                                                                                                                                                • New pension annuity volumes rise while values decline
                                                                                                                                                  • Figure 29: Size of the pension annuities market versus the income drawdown market - new business, 2005-09
                                                                                                                                                • Income drawdown hit hard by the fall in pension fund values
                                                                                                                                                • Market Segmentation by Type of Intermediary – Annuities and Income Drawdown

                                                                                                                                                  • Key points
                                                                                                                                                    • Tied agents manage to maintain new annuity premium levels in 2009
                                                                                                                                                      • Figure 30: Value of new pension annuity premiums, by sales channel, 2005-09
                                                                                                                                                    • All channels experience a decline in new income drawdown premiums
                                                                                                                                                      • Figure 31: Value of new income drawdown premiums, by sales channel, 2005-09
                                                                                                                                                  • Companies and Products/Market Overview and Key Players

                                                                                                                                                    • Major players in the IFA market
                                                                                                                                                      • The Tenet Group
                                                                                                                                                          • Figure 32: Financial performance of Tenet Group, 2007 and 2008
                                                                                                                                                        • Sesame Bankhall Group
                                                                                                                                                            • Figure 33: Financial performance of Sesame Limited, 2007 and 2008
                                                                                                                                                            • Figure 34: Contribution of each of the business units to Sesame Group’s revenue, 2007/08
                                                                                                                                                          • SimplyBiz
                                                                                                                                                              • Figure 35: Financial performance of SimplyBiz, 2007 and 2008
                                                                                                                                                            • Key players in retail banking advice market
                                                                                                                                                              • Barclays Financial Planning
                                                                                                                                                                • Lloyds Banking Group plc/Scottish Widows
                                                                                                                                                                • Brand Communication and Promotion

                                                                                                                                                                  • Key points
                                                                                                                                                                    • Advertising financial advice
                                                                                                                                                                      • £12.9 million spent advertising financial advice in 2009
                                                                                                                                                                        • Figure 36: Overview of total adspend on financial advice services, 2005-09*
                                                                                                                                                                      • Direct mail and press most common forms of advertising
                                                                                                                                                                        • Figure 37: Overview of media type used to advertise financial advice services, 2009*
                                                                                                                                                                      • Providers advertising products to intermediaries
                                                                                                                                                                        • Pension providers’ intermediary-directed adspend totals £1.98 million
                                                                                                                                                                          • Figure 38: Total intermediary-directed adspend, by product type, 2005-09
                                                                                                                                                                        • Top ten responsible for 78% of all pension and annuity adspend in 2009
                                                                                                                                                                          • Figure 39: Top ten advertisers of pension and annunity products to intermediaries, 2005-09
                                                                                                                                                                        • Press dominates intermediary-directed advertising
                                                                                                                                                                          • Figure 40: Top ten publications used by providers to advertise pension and annuity products to intermediaries, 2005-09
                                                                                                                                                                      • The IFA: Client Advice and Expectations

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Two in five IFAs believe generating new pension business will remain difficult
                                                                                                                                                                            • Figure 41: IFA expectations of how current economic climate will impact new pension business, December 2009
                                                                                                                                                                          • 85% of IFAs recommend clients place money into collectives
                                                                                                                                                                            • Figure 42: Where IFAs are recommending their clients invest their money, December 2009
                                                                                                                                                                        • The IFA: Prospects and Future Business Intentions

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Confidence in business prospects improved throughout 2009
                                                                                                                                                                              • Figure 43: Confidence about business prospects compared to six months prior, January-December 2009
                                                                                                                                                                            • IFAs: Government not doing enough to encourage pensions savings
                                                                                                                                                                              • Figure 44: Biggest challenges facing pension intermediaries, January and December 2009
                                                                                                                                                                            • By year-end 2009 more IFAs reported they plan on shifting to fees
                                                                                                                                                                              • Figure 45: Key business intentions over the next 12 months, January-December 2009
                                                                                                                                                                          • The IFA: Opinions on Regulation and Personal Accounts

                                                                                                                                                                            • Key points
                                                                                                                                                                              • Many IFAs still unconvinced of the benefits of the RDR
                                                                                                                                                                                • Figure 46: Opinions on the impact of the Retail Distribution Review on IFA business, January-December 2009
                                                                                                                                                                              • Enthusiasm for the Treating Customers Fairly initiative has waned
                                                                                                                                                                                • Figure 47: Opinions on the impact of the Treating Customers Fairly initiative on IFA business, January-December 2009
                                                                                                                                                                              • Most IFAs believe Personal Accounts will have no impact on their business
                                                                                                                                                                                • Figure 48: Opinions on the impact of Personal Accounts on IFA business, January-December 2009
                                                                                                                                                                            • Appendix – Broader Market Environment

                                                                                                                                                                                • Figure 49: Trends in the age structure of the UK population, by gender, 2004-14
                                                                                                                                                                                • Figure 50: Average gross weekly income of pensioner units*, by age, 2008/09

                                                                                                                                                                            Pensions Intermediaries - UK - January 2010

                                                                                                                                                                            US $2,648.76 (Excl.Tax)