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Pensions: Intermediary Focus - UK - January 2011

This report provides an overview of the key issues impacting the market for pension and retirement income intermediaries. In addition to exploring the wider economic, demographic and regulatory environment, the report details the latest market performance in each segment of the market.The final sections of the report detail the results of Mintel’s exclusively commissioned IFA research survey, conducted by NMG.

  • IFAs should be making more of the fact that they are well-regarded by their existing client base. During the 2009/10 tax year IFAs were the subject of just 2% of all complaints filed with the Financial Ombudsman Service while Banks were the subject of 61% of them.
  • While the narrow upper-end of the market may be the most obvious and easiest segment to target for IFAs post-RDR, greater opportunities may exist in the much larger middle market. With over three-fifths of consumers saying they would be unwilling to pay an upfront fee for advice, though, IFAs will have to work hard to win this mid-market business.
  • There is an opportunity for IFAs to head off the threat from online sources of financial information by developing their own online presence. For example advisers can turn to Google - obviously keen to win intermediary business, the firms has recently published a white paper entitled "IFAs in the digital space".
  • The growing trend towards taking a phased approach to retirement will create significant opportunities for Pension IFAs as demand for more flexible retirement income arrangements increases.
  • Just one fifth of IFAs surveyed believe that that launch of NEST will have a positive or very positive impact on their business, but they should be embracing the scheme: although it will certainly provide new competition for business NEST will also be a powerful force in raising awareness about the need to save for retirement.
  • At the lower-end of the annuity market, not enough people are making enough of the open market option. With the launch of services that enable advisers to more profitably service clients with low pension savings, it may be worthwhile for advisers to get involved with the organisations like the Pension Income Choice Association (PICA), to encourage more people to shop around.

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Table of contents

  1. Issues in the Market

      • Key Issues
        • Abbreviations
        • Future Opportunities

          • We’re preparing… are you?
            • Financial Fitness – Get the balance right
            • Market in Brief

              • Distribution overview
                • Market size
                  • Individual and group pensions
                    • Annuities and income drawdown
                      • Market segmentation by intermediary
                        • Individual and group pensions
                          • Figure 1: New APE* premiums into individual pensions, by type of pension and distribution channel, 2010 (est)
                        • Annuities and income drawdown
                          • Number of directly authorised intermediaries is declining
                            • Figure 2: Number of directly authorised retail intermediary firms, by sector (primary category), 2007-10
                          • Generating new business likely to remain difficult despite recovery
                            • Unawareness, apathy and confusion holding market back
                              • Auto-enrolment both a threat and an opportunity
                                • Phased approach to retirement gaining momentum
                                  • An increasingly burdensome regulatory environment for advice firms
                                    • Some changes in legislation have added more flexibility for consumers
                                      • Brand communication and promotion
                                        • Key IFA research survey results
                                          • Biggest challenges facing pension intermediaries
                                            • Client advice and expectations
                                              • Prospects and future business intentions
                                                • Opinions on regulation and personal accounts
                                                • Internal Market Environment

                                                  • Key points
                                                    • Availability and quality of occupational pension schemes has diminished
                                                      • More private savings will be needed to fill the gap
                                                        • Phased approach to retirement a growing trend
                                                          • Apathy, unawareness and confusion holding back the market
                                                            • Launch of NEST should be welcomed by adviser community
                                                              • It is now more important for consumers to shop around for an annuity
                                                                • Figure 3: External versus internal volume sales of new pension annuities – proportional distribution, 2000-09
                                                              • Advisers could benefit from greater take-up of the OMO
                                                                • PICA advocates mandatory shopping around
                                                                • Regulatory Environment

                                                                  • Key points
                                                                    • RDR requirements will be difficult for some advice firms to cope with
                                                                      • Majority of consumers say they are unwilling to pay for advice
                                                                        • Figure 4: Amount people are prepared to pay up front for independent financial advice, February 2010
                                                                      • Capital adequacy requirements set to increase from 2013
                                                                        • Major changes to the RDR unlikely
                                                                          • Just 2% of all FOS complaints are about IFAs
                                                                            • Figure 5: Financial services firms complained about, by sector, 2006/07-2009/10
                                                                          • FSA plans to raise FOS compensation limit to £150,000 by 2012
                                                                            • Tax relief clawback will hurt pension demand among affluent
                                                                              • Compulsory annuitisation will come to an end in April 2011
                                                                                • State pension age set to rise
                                                                                  • Default retirement age to be repealed
                                                                                  • Broader Market Environment

                                                                                    • Key points
                                                                                      • Path to economic recovery expected to be difficult for many
                                                                                        • Figure 6: Total GDP, at current prices, 2006-13
                                                                                      • Consumers now more focused on saving
                                                                                        • Figure 7: PDI, consumer expenditure and savings, at current prices, 2005-15
                                                                                      • Increasing longevity altering how people manage retirement savings
                                                                                        • Figure 8: Cohort life expectancy at age 60, by gender, 1981-2058
                                                                                      • Many already working beyond the official retirement age
                                                                                        • Figure 9: Breakdown in gross pensioner income (weekly average at 2008/09 prices), 1996/97-2008/09
                                                                                      • Stock markets have recovered but are still highly volatile
                                                                                        • Figure 10: FTSE 100 and FTSE All-Share – daily index movements, November 2004-November 2010
                                                                                      • Inflation and rising taxes could see more money go into pensions
                                                                                        • Figure 11: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, December 2007-December 2010
                                                                                    • SWOT Analysis

                                                                                        • Figure 12: Market for pension-related advice – SWOT analysis, 2011
                                                                                    • Who’s Innovating?

                                                                                      • Key points
                                                                                        • Google helping IFAs develop an online presence
                                                                                          • Sesame Bankhall Group’s IFA school
                                                                                            • Providing RDR support to advisers
                                                                                              • Honister Capital’s Techlink Professional Service
                                                                                                • Low value annuity referral services
                                                                                                  • ‘Non-advised’ annuity outsourcing desk from Tenent
                                                                                                    • Sesame Bankhall Group launched an annuity referral service
                                                                                                    • The Intermediary Marketplace

                                                                                                      • Key points
                                                                                                        • 7% decline in the number of directly authorised intermediaries in 2010
                                                                                                          • Figure 13: Number of directly authorised retail intermediary firms, by sector (primary category), 2007-10
                                                                                                        • Sharp rise in the number of non-primary category financial advice firms
                                                                                                          • Figure 14: Number of financial advice ARs and DA intermediary firms, by type, 2007-10
                                                                                                      • Distribution Overview

                                                                                                        • Key points
                                                                                                          • Majority of new personal pension business IFA-generated
                                                                                                            • EBCs and group pension sales
                                                                                                              • Just under nine in ten new individual pensions sold through IFAs in 2010
                                                                                                                • Figure 15: Proportional distribution of new individual pension APE* premiums, by distribution channel, 2006-10
                                                                                                              • IFAs less influential in the sale of pension annuities
                                                                                                                • Figure 16: Proportional distribution of new pension annuity APE* premiums, by sales channel, 2006-10
                                                                                                              • IFAs behind the large majority of new income drawdown business
                                                                                                                • Figure 17: Proportional distribution of new income drawdown APE* premiums, by sales channel, 2006-10
                                                                                                              • Individual pension distribution – detailed breakdown
                                                                                                                • Personal Pensions – IFAs regain lost ground
                                                                                                                  • Figure 18: Proportional distribution of new personal pension APE* premiums, by distribution channel, 2006-10
                                                                                                                • IFAs sold over 90% of group personal pensions in 2010
                                                                                                                  • Figure 19: Proportional distribution of new group personal pension APE* premiums, by distribution channel, 2006-10
                                                                                                                • IFAs and tied agents split individual stakeholder distribution
                                                                                                                  • Figure 20: Proportional distribution of new individual stakeholder pension APE* premiums, by distribution channel, 2006-10
                                                                                                                • IFAs dominate company-sponsored stakeholder pensions distribution
                                                                                                                  • Figure 21: Proportional distribution of new company-sponsored stakeholder pension APE* premiums, by distribution channel, 2006-10
                                                                                                                • New SIPP business mostly IFA-led
                                                                                                                  • Figure 22: Proportional distribution of new SIPP APE* premiums, by distribution channel, 2006-10
                                                                                                              • Market Size – Individual and Group Pensions

                                                                                                                • Key points
                                                                                                                  • GPP and SIPP new business levels rise in 2010
                                                                                                                    • Figure 23: New individual pension premiums, by product type, 2005-10
                                                                                                                  • Modest rise in single-premium transfer business in 2010
                                                                                                                    • Figure 24: Single-premium transfer business, 2006-10
                                                                                                                  • In-force policy numbers and regular contributions decline
                                                                                                                    • Figure 25: Total number of policies and regular premiums from individual pensions business in force, by pension type, 2004-09
                                                                                                                • Market Segmentation by Type of Intermediary – Individual and Group Pensions

                                                                                                                  • Key points
                                                                                                                    • Market segmentation overview
                                                                                                                      • Figure 26: New APE* premiums into individual pensions, by type of pension and distribution channel, 2010 (est)
                                                                                                                    • IFAs increase new APE business premiums by 25% to £4 billion
                                                                                                                      • Figure 27: Value of new premiums sold through independent intermediaries, by type of premium and pension, 2005-10
                                                                                                                    • Tied agents’ share of APE new business premiums declines by a third
                                                                                                                      • Figure 28: Value of new premiums sold through single-tie agents, by type of premium and pension, 2005-10
                                                                                                                    • Strong rise in the value of GPP business sold via bancassurance
                                                                                                                      • Figure 29: Value of new premiums sold through bancassurance, by type of premium and pension, 2005-10
                                                                                                                    • Direct new business premiums up by more than a quarter
                                                                                                                      • Figure 30: Value of non-intermediated new premiums, by type of premium and pension, 2005-10
                                                                                                                  • Market Size – Annuities and Income Drawdown

                                                                                                                    • Key points
                                                                                                                      • Annuity new business slows down while income drawdown accelerates
                                                                                                                        • Figure 31: Size of the pension annuities market versus the income drawdown market – new business, 2005-10^
                                                                                                                    • Market Segmentation by Type of Intermediary – Annuities and Income Drawdown

                                                                                                                      • Key points
                                                                                                                        • The value of new annuity business increases across all channels
                                                                                                                          • Figure 32: Value of new pension annuity premiums, by sales channel, 2005-10^
                                                                                                                        • IFAs the only channel to grow new income drawdown premiums
                                                                                                                          • Figure 33: Value of new income drawdown premiums, by sales channel, 2005-10^
                                                                                                                      • Key Players

                                                                                                                        • The Tenet Group
                                                                                                                            • Figure 34: Financial performance of Tenet Group Limited, 2008 and 2009
                                                                                                                          • Honister Capital
                                                                                                                            • Sesame Bankhall Group
                                                                                                                                • Figure 35: Financial performance of Sesame Bankhall Group Limited, 2008 and 2009
                                                                                                                              • Positive Solutions (Financial Services)
                                                                                                                                  • Figure 36: Financial performance of Positive Solutions (Financial Services) Limited, 2008 and 2009
                                                                                                                                • Alexander Forbes Financial Services
                                                                                                                                    • Figure 37: Financial performance of Alexander Forbes Financial Services Ltd, 2009 and 2010
                                                                                                                                  • Openwork
                                                                                                                                      • Figure 38: Financial performance of Openwork Limited, 2008 and 2009
                                                                                                                                  • Brand Communication and Promotion

                                                                                                                                    • Key points
                                                                                                                                      • Advertising financial advice to consumers
                                                                                                                                        • Overall financial advice adspend down by 25% in 2010
                                                                                                                                          • Figure 39: Overview of total adspend on financial advice services, 2008-10*
                                                                                                                                        • St James’s Place top advertiser of financial advice
                                                                                                                                          • Figure 40: Top ten advertisers of financial advice services, 2008-10*
                                                                                                                                        • Most advertising goes through direct mail and press
                                                                                                                                          • Figure 41: Overview of media type used to advertise financial advice services, 2010*
                                                                                                                                        • Advertising pension and annuity products to intermediaries
                                                                                                                                          • Pension adspend rises while annuity spend continues to decline
                                                                                                                                            • Figure 42: Adspend to the pension and annuity intermediary sector, 2008-10*
                                                                                                                                          • Aviva and Fidelity top advertisers to pension intermediaries
                                                                                                                                            • Figure 43: Top ten advertisers to the pension intermediary sector, 2008-10
                                                                                                                                          • Partnership Assurance top advertiser of annuities to intermediaries
                                                                                                                                            • Figure 44: Advertisers to the annuity intermediary sector, 2008-10
                                                                                                                                        • The IFA: Biggest Challenges Facing Pension Intermediaries

                                                                                                                                          • Key points
                                                                                                                                            • FSA over-regulation now seen as the biggest challenge for IFAs
                                                                                                                                              • Figure 45: Biggest challenges facing pension intermediaries, 2009 and 2010
                                                                                                                                          • The IFA: Client Advice and Expectations

                                                                                                                                            • Key points
                                                                                                                                              • IFAs continue to believe generating new business will be challenging…
                                                                                                                                                • Figure 46: IFA expectations of how current economic climate will impact new pension business, 2009 and 2010
                                                                                                                                              • …but are more positive about maintaining existing client business levels
                                                                                                                                                • Collectives continue to be the most recommend product
                                                                                                                                                  • Figure 47: Where IFAs are recommending their clients invest their money, 2009 and 2010
                                                                                                                                              • The IFA: Prospects and Future Business Intentions

                                                                                                                                                • Key points
                                                                                                                                                  • Rising confidence about business prospects has come to an end
                                                                                                                                                    • Figure 48: Confidence about own business prospects compared to six months prior, Q4 2009 and Q4 2010
                                                                                                                                                  • Shifting to recurring income the key IFA priority for 2011
                                                                                                                                                    • Figure 49: Key business intentions over the next 12 months, Q4 2009 and Q4 2010
                                                                                                                                                • The IFA: Opinions on Regulation and Personal Accounts

                                                                                                                                                  • Key points
                                                                                                                                                    • Close to 46% believe RDR will have negative or very negative impact
                                                                                                                                                      • Figure 50: Opinions on the impact of the Retail Distribution Review on IFA business, Q4 2009 and Q4 2010
                                                                                                                                                    • Most IFAs think the TCF initiative will have no impact
                                                                                                                                                      • Figure 51: Opinions on the impact of the Treating Customers Fairly initiative on IFA business, Q4 2009 and Q4 2010
                                                                                                                                                    • Money Guidance viewed as irrelevant for majority of IFAs
                                                                                                                                                      • Figure 52: Opinions on the impact of the FSA’s Money Guidance initiative on IFA business, Q4 2009 and Q4 2010
                                                                                                                                                    • One in five IFAs believe Personal Accounts will have a positive impact
                                                                                                                                                      • Figure 53: Opinions on the impact of the 2012 introduction of Personal Accounts on IFA business, Q4 2009 and Q4 2010
                                                                                                                                                  • Appendix – Broader Market Environment

                                                                                                                                                      • Figure 54: Trends and projections in the UK population (‘000s), by age group, 2005-15
                                                                                                                                                      • Figure 55: Projected UK economic activity, by gender and age, 2005-15

                                                                                                                                                  Companies Covered

                                                                                                                                                  • Aegon UK
                                                                                                                                                  • Alexander Forbes
                                                                                                                                                  • Association of British Insurers
                                                                                                                                                  • Bank of England
                                                                                                                                                  • Canada Life Limited
                                                                                                                                                  • Fidelity Investment Services Limited
                                                                                                                                                  • Financial Ombudsman Service
                                                                                                                                                  • Financial Services Authority (The)
                                                                                                                                                  • Friends Provident plc
                                                                                                                                                  • Government Actuary's Department (GAD)
                                                                                                                                                  • Hargreaves Lansdown Plc
                                                                                                                                                  • HSBC Private Bank (UK) Limited
                                                                                                                                                  • Legal & General Group PLC
                                                                                                                                                  • Money Portal Limited
                                                                                                                                                  • Office for National Statistics
                                                                                                                                                  • Sesame Bankhall Group Limited
                                                                                                                                                  • Skipton Building Society
                                                                                                                                                  • St James' Place Plc
                                                                                                                                                  • Standard Life Assurance Company
                                                                                                                                                  • The Chartered Insurance Institute
                                                                                                                                                  • Zurich Financial Services

                                                                                                                                                  Pensions: Intermediary Focus - UK - January 2011

                                                                                                                                                  £1,995.00 (Excl.Tax)