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Personal and Stakeholder Pensions - UK - March 2012

“It is an uncertain time for the personal and stakeholder pension market, in light of imminent new pension reform. Workplace auto-enrolment is seen as one of the main challenges but also one of the biggest opportunities that pension providers will face over the next few years.”

– Sarah Hitchcock, Senior Analyst – Financial Services

Some questsions answered in this report include:

  • What proportion of British adults are saving in a private pension?
  • And what type of pension do they have?
  • What effect will NEST have on the personal pension sector?
  • Who will the new reforms benefit?
  • What impact will NEST have on the pension intermediary market?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Declining levels of new regular-premium business
              • Figure 1: Forecast of new personal and individual stakeholder pension business (regular premiums only) – fan chart, 2006-16
            • Reduction in transfer business has also led to a fall in single-premium business
              • Figure 2: New personal and individual stakeholder pension business – regular and single premiums, 2007-11
            • Increasing competition from the group sector
              • Market factors
                • Current economic environment is not conducive to long-term saving
                  • Declining pensions participation
                    • Major pension reform on the way
                      • Companies, brands and innovation
                        • Product innovation
                          • Leading players in the market
                            • IFAs generate the lion’s share of sales
                              • Minimal above-the-line advertising
                                • The consumer
                                  • Figure 3: Retirement provision, January 2012
                                • Stakeholder pensions are still much less popular than traditional personal pensions
                                  • Figure 4: Ownership of pensions, by type, January 2012
                                • Around a third of personal and stakeholder pension savers are not making any pension contributions
                                  • Figure 5: Level of monthly contributions – by personal and stakeholder pension savers, January 2012
                                • Nearly a quarter of personal pension savers reduced or stopped their contributions in 2011
                                  • Figure 6: Level of agreement with statements about pension contribution activity and performance monitoring, January 2012
                                • Many people are failing to give retirement saving the priority it deserves
                                  • What we think
                                  • Issues in the Market

                                      • What proportion of British adults are saving in a private pension?
                                        • And what type of pension do they have?
                                          • What effect will NEST have on the personal pension sector?
                                            • Who will the new reforms benefit?
                                              • What impact will NEST have on the pension intermediary market?
                                              • Future Opportunities

                                                  • Pensions need to be ‘meaningful’ to be truly valued
                                                    • Engage customers through more interactive modes of communication
                                                    • Internal Market Environment

                                                      • Key points
                                                        • Key issues affecting the pensions industry
                                                          • Individual pension business in force has been in decline…
                                                            • Figure 7: Size of the DC pension pool, 2003-10
                                                          • …but the DC pool will get a welcome boost with the introduction of NEST
                                                            • NEST will impose a 1.8% contribution charge on members
                                                              • Investment strategy will be determined by a predetermined retirement date
                                                                • Impact on existing pension arrangements
                                                                  • A third of IFAs are worried about NEST impact on personal pension business
                                                                    • Figure 8: Biggest challenges facing pension intermediaries, 2009-11
                                                                • Broader Market Environment

                                                                  • Key points
                                                                    • Summary of the main macroeconomic indicators impacting on the consumer credit market
                                                                      • Household savings level falls, reflecting a drop in real wage growth
                                                                        • No imminent prospect of a base rate rise
                                                                          • Figure 9: Average annual changes in the Bank of England base rate, CPI and RPI – UK, 2003-12
                                                                        • Stockmarket volatility is a constant risk for pension savers…
                                                                          • Figure 10: FTSE 100 and FTSE All-Share – daily index movements, January 2003-December 2011
                                                                        • …fuelling the need for pension products that offer multi-asset fund choice
                                                                        • Competitive Context

                                                                          • Key points
                                                                            • Alternative retirement funding strategies
                                                                              • Figure 11: Summary of retirement funding strategies, 2011
                                                                              • Figure 12: Attitudes towards investing in property versus stocks and shares and pensions, January 2012
                                                                            • Strong rise in GPP sales over the past two years…
                                                                              • Figure 13: Number of new individual pension contracts (including GPPs), by type of product, 2007-11
                                                                            • …boosting premium income
                                                                              • Figure 14: Value of new individual pension business (including GPPs), by premium, 2007-11
                                                                            • New occupational DC pension saw a strong uplift in premium income in 2011
                                                                              • Figure 15: New insurer-administered DC occupational pension business (volume and value), 2007-11
                                                                          • Market SWOT Analysis

                                                                              • Figure 16: Personal and stakeholder pensions – SWOT analysis, 2012
                                                                          • Who’s Innovating?

                                                                            • Key points
                                                                              • In this market, regulatory change provides the catalyst for innovation
                                                                                • Standard Life launches online direct personal pension
                                                                                  • Most development activity is currently centred on the GPP market…
                                                                                    • …as well as on enhancing platform technology
                                                                                      • Platform pensions predicted to become commonplace
                                                                                      • Market Size and Forecast

                                                                                        • Key points
                                                                                          • Decline in new premiums continues
                                                                                            • Figure 17: New personal pension and individual stakeholder pension business, 2007-11
                                                                                          • Transfers account for more than two thirds of new single premiums
                                                                                            • Figure 18: Transfers as a share of new personal and individual stakeholder pension business, 2007-11
                                                                                          • Personal pension forecast
                                                                                            • Figure 19: Forecast of new personal and individual stakeholder pension business (regular premiums only) – fan chart, 2006-16
                                                                                            • Figure 20: Forecast of new regular-premium personal pension and individual stakeholder pension business, 2007-16
                                                                                          • Forecast methodology
                                                                                            • Fan chart explanation
                                                                                            • Market Share

                                                                                              • Key points
                                                                                                • Aviva reclaimed the top spot in 2010
                                                                                                  • Figure 21: Ranking of individual pension providers – UK, by GWP relating to total individual pension and income drawdown business, 2009 and 2010
                                                                                              • Companies and Products

                                                                                                  • Aviva
                                                                                                    • Lloyds Banking Group
                                                                                                      • Standard Life
                                                                                                          • Figure 22: Key financial data for Standard Life, Q1-Q3 2010 AND 2011
                                                                                                          • Figure 23: Key financial data for Standard Life, 2009 and 2010
                                                                                                        • AEGON
                                                                                                          • Old Mutual
                                                                                                          • Brand Communication and Promotion

                                                                                                            • Key points
                                                                                                              • The Holy Grail of a trusted brand
                                                                                                                • Pension providers target their advertising more at advisers than the end customer
                                                                                                                  • Pension providers and advisers visibly cut back on advertising…
                                                                                                                    • Figure 24: Total advertising expenditure on pension products and services (excluding annuities), 2007-11
                                                                                                                  • …although adspend on annuities increased over the same period
                                                                                                                    • Figure 25: Total advertising expenditure on pension and retirement income product, by sub-category, 2007-11
                                                                                                                  • Aviva uses TV advertising to enhance its brand presence in the retirement saving arena
                                                                                                                    • Figure 26: Top five advertisers of pension products and services, 2009-11
                                                                                                                • Channels to Market

                                                                                                                  • Key points
                                                                                                                    • IFAs increase their share of the personal pension market in 2011
                                                                                                                      • Figure 27: New personal pension business, by sales channel, 2007-11
                                                                                                                    • Tied agents play a greater role in the stakeholder pension market
                                                                                                                      • Figure 28: New individual stakeholder pension business, by sales channel, 2007-11
                                                                                                                  • Pension Ownership and Retirement Provision

                                                                                                                    • Key points
                                                                                                                      • Survey background
                                                                                                                        • A large share of the adult population have limited or no pension savings
                                                                                                                            • Figure 29: Private pension provision, January 2012
                                                                                                                          • Workplace pension reforms likely reduce personal pension participation
                                                                                                                            • Many people have accumulated benefits in more than one type of pension
                                                                                                                              • Figure 30: Private pension provision, by type of saver (cross-analysis), January 2012
                                                                                                                            • Greater job mobility has led to many people owning several pension pots
                                                                                                                              • Gender gap will narrow with the advent of NEST
                                                                                                                                • Figure 31: Private pension provision, by gender and working status, January 2012
                                                                                                                              • Private pension ownership increases with age
                                                                                                                                • Figure 32: Private pension provision, by age, January 2012
                                                                                                                              • Employment status and personal wealth are major determiners in pension take-up
                                                                                                                                • Figure 33: Private pension provision, by highest rate of income tax paid, January 2012
                                                                                                                            • Level of Personal Pension Contributions

                                                                                                                              • Key points
                                                                                                                                • Almost a third of personal pension savers are currently not making any contributions
                                                                                                                                  • Figure 34: Level of monthly contributions, by type of personal pension owned, January 2012
                                                                                                                                • Contribution rates fall with age
                                                                                                                                  • Figure 35: Level of monthly contributions to a personal pension or GPP, by gender and age, January 2012
                                                                                                                                • Self-employed should be saving more
                                                                                                                                  • Figure 36: Level of monthly contributions to a personal pension or GPP, by working status, January 2012
                                                                                                                              • Pension Monitoring and Saving Activity

                                                                                                                                • Key points
                                                                                                                                  • Most personal pension savers fail to consult an IFA for pensions advice
                                                                                                                                      • Figure 37: Level of agreement with statements about pension contribution activity and performance monitoring, January 2012
                                                                                                                                    • Nearly one in four personal pension savers have stopped or reduced their contributions in the past year
                                                                                                                                      • Figure 38: Agreement with statements about pension contribution activity and performance monitoring, by type of personal pension owned, January 2012
                                                                                                                                    • The more people contribute to their pension, the more ‘engaged’ they are
                                                                                                                                      • Figure 39: Agreement with statements about pension contribution activity and performance monitoring, by level of monthly contribution, January 2012
                                                                                                                                  • Priority Given to Retirement Saving

                                                                                                                                    • Key points
                                                                                                                                      • Many non-retired adults consider saving for their retirement a low priority…
                                                                                                                                        • Figure 40: Level of priority given to retirement saving, by gender and age, January 2012
                                                                                                                                      • …but those who have a pension are more likely to consider it a high priority
                                                                                                                                        • Figure 41: Level of priority given to retirement saving, by type of personal pension owned, January 2012
                                                                                                                                      • Only around a quarter of non-retired adults are confident they are saving enough for their retirement
                                                                                                                                        • Figure 42: Confidence in amount being saving towards retirement, by gender and age, January 2012
                                                                                                                                      • The more people contribute, the more confident they feel
                                                                                                                                        • Figure 43: Confidence in amount being saving towards retirement, by level of monthly contribution (personal pension savers only), January 2012
                                                                                                                                    • Appendix – Product Definitions and Market Background

                                                                                                                                      • Product types and definitions
                                                                                                                                        • Figure 44: Types of private pension provision in the UK, January 2012
                                                                                                                                      • Personal pension design and retirement income options
                                                                                                                                        • Recent milestones in pension reform
                                                                                                                                        • Appendix – Market Forecast

                                                                                                                                          • Best and worst case scenario forecast
                                                                                                                                            • Figure 45: Forecast of new personal and individual stakeholder pension business (regular premiums only) Best and worst case scenario, 2011-16
                                                                                                                                        • Appendix – Pension Ownership by Demographics

                                                                                                                                            • Figure 46: Pension ownership, by product type and demographics, January 2012
                                                                                                                                        • Appendix – Profile of Personal Pension Savers

                                                                                                                                            • Figure 47: Demographic profile of personal pension savers versus total non-retired sample, January 2012
                                                                                                                                        • Appendix - Level of Personal Pension Contributions

                                                                                                                                            • Figure 48: Level of personal pension contributions, by demographics, January 2012
                                                                                                                                        • Appendix – Pension Monitoring and Saving Activity

                                                                                                                                            • Figure 49: Agreement with statement ‘I always read/review my annual pension statement’, by demographics, January 2012
                                                                                                                                            • Figure 50: Agreement with statements ‘When I need advice about my pension arrangements I consult an independent financial adviser’, January 2012
                                                                                                                                            • Figure 51: Agreement with statements ‘I regularly monitor the performance of my underlying pension funds’, by demographics, January 2012
                                                                                                                                            • Figure 52: Agreement with statement ’Within the past year I’ve reduced or stopped my pension contributions’, by demographics, January 2012
                                                                                                                                            • Figure 53: Agreement with statement ‘I might have to reduce or stop my pension contributions soon, in order to reduce my expenditure’, by demographics, January 2012
                                                                                                                                            • Figure 54: Agreement with statement ‘I plan to restart or increase my pension contributions within the coming year’, by demographics, January 2012
                                                                                                                                        • Appendix – Priority Given to Retirement Saving

                                                                                                                                            • Figure 55: Level of priority given to retirement saving, by demographics, January 2012
                                                                                                                                            • Figure 56: Confidence in amount being saving towards retirement, by demographics, January 2012

                                                                                                                                        Companies Covered

                                                                                                                                        • Aviva Plc
                                                                                                                                        • Federation of Small Businesses
                                                                                                                                        • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                        • Lloyds Banking Group
                                                                                                                                        • Old Mutual plc
                                                                                                                                        • Scottish Widows Bank plc
                                                                                                                                        • Skandia UK

                                                                                                                                        Personal and Stakeholder Pensions - UK - March 2012

                                                                                                                                        £1,995.00 (Excl.Tax)