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Pensions - Planning for Retirement - Ireland - June 2009

Planning for retirement is regarded by some consumers as a tedious yet necessary task. Pension uptake is low among Irish consumers, primarily due to procrastination and a fear of locking away money for the future.

However, with the Celtic Tiger era well and truly consigned to the past, and the fact that Irish consumers are living longer, planning for retirement should be of even more importance than ever. The main barriers to retirement planning now lie in affordability; concerns over job security will make it difficult for some consumers to think too far ahead, and many may feel financially incapable of setting up a pension or contributing to an existing one. Trust is also an issue across all areas of financial services, and in turn, consumers may use other, less conventional methods of planning for retirement.

Key themes in the market

  • How are pension fund assets and savings and investments performing in light of the current economic climate?

  • What effect could the recession have on consumers’ attitudes towards pensions and other retirement planning options?

  • What are the main barriers to pension uptake?

  • Who are the key players in the retirement planning market, and what level of activity are they providing?

  • How are Irish consumers planning for their retirement?

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Table of contents

  1. Issues in the Market

      • Key themes in the market
        • Definitions
          • Abbreviations
          • Insights and Opportunities

            • Linking pensions with lifestyles
              • Tempting the equity-shy
                • Olympic-sized savings
                • Market in Brief

                  • The recession – a testing time for pensions, savings and investments
                    • Population changes leading to new targeting opportunities
                      • Buy-to-let property market experiencing difficulty
                        • Stock market crashes affecting performance of pensions and investments
                          • Retirement planning initiatives and incentives abound
                            • Personal pension ownership may become eclipsed by state pension
                            • Fast Forward Trends

                                • Trend 1: Corner Store
                                  • What’s it about?
                                    • What we’ve seen
                                      • What next?
                                        • Trend 2: Collective Intelligence
                                          • What's it about?
                                            • What we’ve seen
                                              • What next?
                                              • Internal Market Environment

                                                • Key points
                                                  • Budget measures in both UK and RoI met with opposition
                                                    • RoI Supplementary Budget ‘discouraging sensible financial planning’
                                                        • Figure 1: Supplementary Budget income tax rates, 2009
                                                      • Early retirement scheme in Public Sector set to free up government cash
                                                        • Lower-paid public servants to benefit from cut in pension-related tax
                                                          • Figure 2: Existing and new arrangements for pension tax charged to public servants, RoI, 2009
                                                        • UK Budget to impact on NI pensions?
                                                          • Reactions to Budget measures
                                                            • The Budget redeems itself
                                                              • Silver lining for Irish pension industry?
                                                                • Property still dominates RoI investment portfolios
                                                                  • Figure 3: Composition of household wealth, RoI, 2007 and 2008
                                                                • Pension protection for employees
                                                                  • Reactions to the changes
                                                                    • Defined-benefit schemes in decline
                                                                      • Figure 4: Number of current defined-benefit schemes, RoI, 2003-07
                                                                      • Figure 5: Percentage of employees enrolled in a employer-sponsored defined-benefit scheme, UK, 2002-08
                                                                      • Figure 6: Percentage of company-sponsored defined-benefit schemes that are open or closed to new entrants, RoI, 2002 and 2007
                                                                    • Defined-contribution schemes gain ground in RoI
                                                                      • Figure 7: Number of current defined-contribution schemes, RoI, 2003-07
                                                                      • Figure 8: Average employer contribution levels as a percentage of salary, RoI, 2002 and 2007
                                                                    • NI faring the same way
                                                                      • NPSS to arrive by 2012
                                                                        • Confidence in pensions returning in UK
                                                                          • Figure 9: Respondents’ choice of best way to save for retirement, UK, Q1 2009
                                                                          • Figure 10: Person trusted to provide a pension, UK, Q1 2008 and Q1 2009
                                                                        • RoI consumers less convinced about pensions
                                                                          • Figure 11: Agreement that now is a good time to invest in the given investment options, RoI, 2007 and 2008
                                                                      • Broader Market Environment

                                                                        • Key points
                                                                          • Growing unemployment a concern for retirement planning market
                                                                            • Figure 12: Economic outlook for NI and RoI, 2008-10
                                                                          • Housing and construction
                                                                            • Unemployment
                                                                              • Consumer spending
                                                                                • Consumer confidence beginning to return in Ireland
                                                                                  • Figure 13: Consumer sentiment index, RoI, January 2003-April 2009
                                                                                • Implications for the retirement planning market
                                                                                  • PRSA providers to benefit from rising unemployment levels
                                                                                    • Contributions fall as consumers tighten their belts
                                                                                      • ‘Would-be’ savers deterred by poor interest rates and lower PDI
                                                                                        • Figure 14: Average annual UK and eurozone interest rates, January 2003-May 2009
                                                                                      • Investment trends shifting
                                                                                        • Population changes a boon to market
                                                                                          • Retirement lifespan longer than before
                                                                                            • Figure 15: Life expectancy at birth, by gender, NI and RoI, 1970/72-2005/07
                                                                                            • Figure 16: Percentage of over-65s in employment, NI and RoI, 2002-07
                                                                                          • Shifts in Ireland’s demographic structure to impact on market
                                                                                            • Figure 17: Population projections, by age group, NI, 2006-26
                                                                                            • Figure 18: Population projections, by age group, RoI, 2006-26
                                                                                          • Inflationary pressures on consumers
                                                                                            • Figure 19: Monthly changes in annual inflation rates* for CPI in RoI and CPI and RPI in UK, January 2002-April 2009
                                                                                        • Competitive Context

                                                                                          • Key points
                                                                                            • Affordability and lack of awareness major deterrents to retirement planning
                                                                                              • A lack of understanding regarding pensions
                                                                                                • Affordability
                                                                                                  • Confusion surrounding the ‘jargon’ used in pensions
                                                                                                    • Procrastination and a fear of locking away money
                                                                                                      • Buy-to-let property now less of an appealing option for investors
                                                                                                        • Current market conditions unfavourable for investors
                                                                                                          • Other factors exacerbating the problem
                                                                                                            • Mortgage holders undeterred by collapse in housing market
                                                                                                              • Non-traditional investments look promising during recession
                                                                                                              • Strengths and Weaknesses

                                                                                                                • Strengths
                                                                                                                  • Weaknesses
                                                                                                                  • Market Value and Forecast

                                                                                                                    • Key points
                                                                                                                      • Pension funds fall at the hands of the stock market
                                                                                                                        • Figure 20: Value of pension fund assets, RoI, 2003-08
                                                                                                                        • Figure 21: Value of pension fund assets, NI, 2003-08
                                                                                                                      • Some recovery in 2009 expected
                                                                                                                          • Figure 22: Percentage asset class weights of pension funds, RoI, 2003-08
                                                                                                                        • Savings market to suffer from consumer cautiousness
                                                                                                                          • Figure 23: Value of savings market, IoI, NI and RoI, 2003-13
                                                                                                                        • ‘Dynamism’ needed to drive the market forward
                                                                                                                          • Consumers to remain equity-averse as recession fares
                                                                                                                            • Figure 24: FTSE 100 and FTSE All-Share monthly index movements, January 2003-June 2009
                                                                                                                            • Figure 25: ISEQ monthly index movements, January 2003-June 2009
                                                                                                                        • Who’s Innovating?

                                                                                                                          • Key points
                                                                                                                            • Engaging the consumer in retirement planning…
                                                                                                                              • ...and urging existing pension holders to review their pension
                                                                                                                                • Eliminating market volatility from investments
                                                                                                                                  • Competitive rates designed to set savings providers apart
                                                                                                                                    • New product launches and offer extensions boosting activity in 2009
                                                                                                                                      • Fund diversification taking example from Mother Nature
                                                                                                                                        • New market entrants
                                                                                                                                        • Companies and Products

                                                                                                                                          • Key points
                                                                                                                                            • Abbey National plc
                                                                                                                                              • Alliance & Leicester
                                                                                                                                                • Allied Irish Bank (AIB)
                                                                                                                                                  • An Post Group
                                                                                                                                                    • Aviva
                                                                                                                                                      • Bank of Ireland Group (BoI)
                                                                                                                                                        • Halifax (Bank of Scotland Ireland Limited)
                                                                                                                                                          • Halifax (Bank of Scotland plc)
                                                                                                                                                            • HSBC Bank plc
                                                                                                                                                              • Irish Life & Permanent Group plc
                                                                                                                                                                • Nationwide
                                                                                                                                                                  • National Irish Bank (NIB) and Northern Bank
                                                                                                                                                                    • Post Office
                                                                                                                                                                        • Standard Life plc
                                                                                                                                                                          • Ulster Bank Group
                                                                                                                                                                            • Stockbrokers
                                                                                                                                                                              • Cunningham Coates Stockbrokers
                                                                                                                                                                                • Davy Stockbrokers
                                                                                                                                                                                  • Goodbody Stockbrokers
                                                                                                                                                                                  • The Consumer – Product Ownership

                                                                                                                                                                                    • Key points
                                                                                                                                                                                      • Growth in RoI pension ownership likely to be impacted by recession
                                                                                                                                                                                        • Figure 26: Pension ownership (company and individual), NI and RoI, 2003-08
                                                                                                                                                                                      • Growing reliance on state pension indicative of pension market’s future?
                                                                                                                                                                                        • Figure 27: State pension ownership, NI and RoI, 2003-08
                                                                                                                                                                                      • RoI consumers filling up the piggy banks…
                                                                                                                                                                                          • Figure 28: Number of respondents with one, two or three or more accounts, RoI, 2007 and 2008
                                                                                                                                                                                          • Figure 29: Number of respondents with one, two or three or more accounts, NI, 2007 and 2008
                                                                                                                                                                                        • ...while NI consumers take advantage of tax-free savings
                                                                                                                                                                                          • Flexibility remains a key factor for savers
                                                                                                                                                                                            • Figure 30: Type of savings account owned by respondents, RoI, 2007 and 2008
                                                                                                                                                                                          • Fairweather NI savers vs regular RoI savers
                                                                                                                                                                                              • Figure 31: Top five most important factors when choosing a savings account provider, NI and RoI, 2006 and 2008
                                                                                                                                                                                            • Confidence in RoI investments likely to be dampened by poor stock market performance
                                                                                                                                                                                              • Figure 32: Percentage of respondents who have investments, stocks, shares or unit trusts, NI and RoI, 2003-08
                                                                                                                                                                                          • Consumer Target Groups

                                                                                                                                                                                            • Key points
                                                                                                                                                                                              • NI target groups
                                                                                                                                                                                                • Figure 33: Consumer typologies, NI, 2008
                                                                                                                                                                                              • Financial Fledglings
                                                                                                                                                                                                • Reward Reapers
                                                                                                                                                                                                  • Financial Foundation Layers
                                                                                                                                                                                                    • Ill-prepared
                                                                                                                                                                                                      • RoI target groups
                                                                                                                                                                                                        • Figure 34: Consumer typologies, RoI, 2008
                                                                                                                                                                                                      • Carpe Diem Savers
                                                                                                                                                                                                        • Sensible Savers
                                                                                                                                                                                                          • Worry-free
                                                                                                                                                                                                            • Aspiring Savers
                                                                                                                                                                                                            • Appendix

                                                                                                                                                                                                              • Broader market environment
                                                                                                                                                                                                                • Figure 35: Population projections, by age group, NI, 2006-26
                                                                                                                                                                                                                • Figure 36: Population projections, by age group, RoI, 2006-26
                                                                                                                                                                                                              • Who’s innovating?
                                                                                                                                                                                                                • Figure 37: Agreement with statement ‘Financial security after retirement is your own responsibility’, by demographic breakdown, NI and RoI, 2008
                                                                                                                                                                                                              • The consumer – product ownership
                                                                                                                                                                                                                • Figure 38: Pension ownership, NI, 2003-08
                                                                                                                                                                                                                • Figure 39: Pension ownership, RoI, 2003-08
                                                                                                                                                                                                                • Figure 40: ISA ownership, by demographic breakdown, NI, 2008
                                                                                                                                                                                                                • Figure 41: Agreement with finance statements, NI, 2003-08
                                                                                                                                                                                                                • Figure 42: Agreement with finance statements, RoI, 2003-08
                                                                                                                                                                                                                • Figure 43: Agreement with statements relating to investments and spending, NI, 2007 and 2008
                                                                                                                                                                                                                • Figure 44: Agreement with statements relating to investments and spending, RoI, 2007 and 2008
                                                                                                                                                                                                              • Consumer target groups
                                                                                                                                                                                                                • Figure 45: Consumer target groups, by agreement with statements, NI, 2008
                                                                                                                                                                                                                • Figure 46: Consumer target groups, by demographic breakdown, NI, 2008
                                                                                                                                                                                                                • Figure 47: Consumer target groups, by agreement with statements, RoI, 2008
                                                                                                                                                                                                                • Figure 48: Consumer target groups, by demographic breakdown, RoI, 2008
                                                                                                                                                                                                              • Millward Brown data
                                                                                                                                                                                                                • Figure 49: Agreement with statements relating to lifestyle/shopping habits affected by the credit crunch in the last three months, NI and RoI, May 2009
                                                                                                                                                                                                                • Figure 50: Agreement with statements relating to lasting impressions the experience of the recession or credit crunch has had on respondents, NI and RoI, May 2009

                                                                                                                                                                                                            Companies Covered

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                                                                                                                                                                                                            Pensions - Planning for Retirement - Ireland - June 2009

                                                                                                                                                                                                            US $1,466.97 (Excl.Tax)