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Retirement Income Solutions - UK - August 2016

“The retirement income market has changed dramatically since 2014, with mixed fortunes for annuities and income drawdown products. Despite a huge contraction in new annuity sales, it’s clear that retirees still want a predictable and guaranteed income in retirement, and this could see hybrid and blended products come to prominence in the market. The UK’s vote to leave the EU has added further complexity for those heading towards retirement as annuity rates have fallen sharply in the weeks following the vote. This is likely to result in more people delaying their retirement income plans until more certainty prevails and will also provide a boost to the income drawdown sector of the market.”
– Scott McDonald, Financial Services Analyst

This report examines the following issues:

  • Consumers take a conservative approach to pension withdrawals
  • Pension Wise popularity has increased, but need for tailored advice will see growth in robo-advice

This report examines the retirement income market, with a focus on annuity and income drawdown products. The report looks at the changes in the market following the introduction of pension freedoms, how businesses have responded to these changes and the key players in the market. Mintel’s consumer research also reviews consumer ownership of pension products, and their attitudes towards planning for retirement and advice. The report also considers how consumers intend to take money from their pension fund and what they are considering spending this money on. Finally, the report looks into consumers’ awareness of pension freedoms and what features of retirement income products appeal to them.

For the purposes of this Report, Mintel has used the following definitions:

Annuities are an insurance product that allows a consumer to purchase a guaranteed income for life with a pension fund. Prior to April 2015 buying an annuity was the only option available to many retirees, but this is no longer the case following the introduction of pension freedoms. Once a consumer has purchased an annuity it is not possible to cancel this policy, however, the government have been consulted on the creation of a second hand annuity market to allow consumers to sell their annuities.

Enhanced Annuities work in the same way as a standard annuity, by offering a retiree an income for life. But, enhanced annuities are only available to retirees that meet certain criteria typically those that have a pre-existing medical condition or smoke or drink heavily. Many enhanced annuities work on the basis that due to pre-existing medical conditions, or a consumer’s lifestyle, they will not have to pay out for as long, and insurers then compensate consumers for this fact by increasing the consumer’s income.

Hybrid & Blended products allow a consumer to have both an annuity and income drawdown product, resulting in consumers having some guarantees over their income, but also allowing their pension fund to continue to grow. Hybrid products allow a consumer to purchase a packaged product from a retirement income provider, but may mean that both products may not be the best option available to a consumer, whereas blended products allows consumers to purchase both products, but from different providers. This allows a consumer to select products that meet their needs, but may result in multiple fees and charges being incurred. Income Drawdown is an alternative method of drawing pension funds, this method allowing a retiree to leave their pension fund invested and withdraw lump sums from their pension as and when they wish to. As the pension fund is still invested there is a possibility that the fund can increase or decrease depending on what investments the fund is invested in. The first 25% that is taken from a pension fund is tax free, any further withdrawals are subject to income tax.

Uncrystallised Fund Pension Lump Sum (UFPLS) is another way that retirees are able to withdraw their pension funds. This method works much in the same way that income drawdown does, but it does not require a consumer to move their pension fund to an income drawdown provider. Pension funds remains with a pension provider and cash withdrawals can be made from this fund, subject to the same tax implications outlined for income drawdown. Not all pension providers will allow their members to withdraw their pension funds as UFPLS.

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this report
      • Executive Summary

          • The market
            • Annuity sales and premiums have decreased dramatically
              • Figure 1: New annuities contracts and premiums, 2011-15
            • Income drawdown market is the winner from pension freedoms
              • Brexit adds more uncertainty for those planning to retire
                • Pension auto-enrolment rumbles on
                  • Lifetime ISA set to challenge traditional pensions
                    • Companies and brands
                      • Aviva is the top annuities provider for now
                        • Figure 2: Market share of top five annuity providers and others in the market (excluding bulk and deferred annuities), 2015
                      • Prudential withdraws from the opening annuities market
                        • Defined benefit de-risking popularity
                          • Popularity of hybrid and blended products set to increase
                            • FCA takes a keen interest in robo- advice
                              • The consumer
                                • Nearly two thirds of over-45s have a pension product
                                  • Figure 3: Pension ownership, June 2016
                                • Passive attitude towards pension savings
                                  • Figure 4: Consumer agreement with statements regarding their pension, June 2016
                                • Under half understand pension reform changes
                                  • Figure 5: Consumer awareness of pension freedoms, June 2016
                                • A third intend to take their tax free lump sum
                                  • Figure 6: Consumers plans to withdraw pensions cash, June 2016
                                • Adding pensions cash to savings is most likely outcome from pension withdrawals
                                  • Figure 7: Consumer plans for spending pensions cash withdrawals, June 2016
                                • What we think
                                • Issues and Insights

                                  • Consumers take a conservative approach to pension withdrawals
                                    • The facts
                                      • The implications
                                        • Pension Wise popularity has increased, but need for tailored advice will see growth in robo-advice
                                          • The facts
                                            • The implications
                                            • The Market – What You Need to Know

                                              • Annuity sales and premiums have decreased dramatically
                                                • Income drawdown market is the winner from pension freedoms
                                                  • Annuity internal sales increase again
                                                    • Brexit impacts annuities appeal
                                                      • Pension auto-enrolment rumbles on
                                                      • Annuities – Market Size and Forecast

                                                        • Individual annuity sales plummeted further in 2015
                                                          • Figure 8: New individual annuity contracts and premiums, 2011-15
                                                        • Annuity premiums also down but by a smaller percentage
                                                          • Figure 9: Proportion of pension annuities sold by size of fund, 2010-15
                                                        • Brexit vote further undermines appeal of annuities
                                                          • Annuities to continue decline
                                                            • Figure 10: Forecast of the value of new annuity sales, 2011-21
                                                            • Figure 11: Total forecast value of new annuities, 2011-21
                                                          • Forecast methodology
                                                          • Income Drawdown – Market Size and Forecast

                                                              • Figure 12: New income drawdown contracts and premiums, 2011-15
                                                            • FCA data shows income drawdown sales have surpassed annuity sales
                                                              • Figure 13: Income drawdown – Number of sales and premium amount 2013-15
                                                            • Income drawdown popularity to increase after Brexit vote
                                                              • Income drawdown market growth set to continue
                                                                • Figure 14: Forecast of the value of new income drawdown sales, 2011- 21
                                                                • Figure 15: Total forecast value of new income drawdown plans, 2011-21
                                                              • Forecast methodology
                                                              • Market Segmentation

                                                                • Enhanced annuities market share is steadily increasing
                                                                  • Figure 16: Lifetime and enhanced annuities volumes and market share, 2011-15
                                                                • Uncrystallised fund pension lump sum withdrawals prove unpopular
                                                                  • Figure 17: Options taken by people accessing pension pot for the first time in Oct-Dec 2015
                                                                • Full encashment popular among those that have smaller pots
                                                                  • Figure 18: Number of pots fully withdrawn, by size of pot Oct- Dec 2015
                                                              • Channels to Market

                                                                • Overall increase in independent advice sales …
                                                                  • Figure 19: Volume of new annuities and income drawdown sales (combined), by method of purchase, 2014-15
                                                                • … but there has been a reduction in independent advice Income drawdown sales
                                                                  • Figure 20: Volume of new income drawdown sales, by sales channel, 2014-15
                                                                • Internal sales have increased again
                                                                  • Figure 21: Internal and external annuity sales, 2011-15
                                                                  • Figure 22: Internal and external income drawdown sales, 2015
                                                              • Market Drivers

                                                                • Ageing population will present a problem for the state
                                                                  • Figure 23: UK population projection, by age band, 2016-56
                                                                • Life expectancy continues to increase
                                                                  • Figure 24: Projected life expectancy at 65, by gender, 1981-2064
                                                                • Flat rate pension come in to force
                                                                  • DC ownership surpasses DB for the first time
                                                                    • Figure 25: Active members of private sector occupational pension schemes, 2004-14
                                                                  • Annuity rates continue to fall
                                                                  • Regulatory and Legislative Changes

                                                                    • Second hand annuity market
                                                                      • Pension Wise and the Pension Advisory Service to be merged
                                                                        • Financial Advice Market Review/Budget 2016
                                                                          • Prototype pensions dashboard due by 2017
                                                                            • Auto-enrolment nears completion
                                                                              • Lifetime ISA release on the horizon
                                                                                • Robo-advice department at FCA gets the green light
                                                                                  • Mandatory annuity comparison tool could be introduced
                                                                                  • Companies and Products – What You Need to Know

                                                                                    • Aviva is the top annuities provider for now
                                                                                      • Prudential withdraws from the opening annuities market
                                                                                        • Defined benefit de-risking popularity
                                                                                          • Popularity of hybrid and blended products set to increase
                                                                                            • FCA takes a keen interest in robo-advice
                                                                                            • Market Share – Annuities

                                                                                              • Aviva leads the way in individual annuities market
                                                                                                • Figure 26: Annuity sales by UK providers (excluding bulk and deferred annuities), 2015
                                                                                                • Figure 27: Market share of top five annuity providers and others in the market (excluding bulk and deferred annuities), 2015
                                                                                              • A note on income drawdown market share
                                                                                              • Competitive Strategies

                                                                                                • Just Retirement merges with Partnership
                                                                                                  • Prudential withdraws from open annuity market
                                                                                                    • Royal London offers free drawdown governance service
                                                                                                      • Define benefit de-risking and bulk annuity underwriting becomes more popular
                                                                                                        • Hybrid and blended products offer an alternative …
                                                                                                          • … but some providers have already withdrawn their products
                                                                                                            • Aviva launches face-to- face advice service
                                                                                                              • Robo-advice to offer alternative to those with smaller pension pots
                                                                                                              • The Consumer – What You Need to Know

                                                                                                                • Nearly two thirds of over-45s have a pension product
                                                                                                                  • Passive attitude towards pension savings
                                                                                                                    • Under half understand pension reform changes
                                                                                                                      • A third intend to take their pension as a tax free lump sum
                                                                                                                        • Adding pensions cash to savings is most likely outcome from pension withdrawals
                                                                                                                        • Consumer Ownership of Pension Products

                                                                                                                          • Almost two thirds own a pension product …
                                                                                                                              • Figure 28: Pension ownership, June 2016
                                                                                                                            • … but the gender divide still exists
                                                                                                                                • Figure 29: Pension ownership, by gender, June 2016
                                                                                                                              • Those who are parents of children 18+ are less likely to own a pension product
                                                                                                                                • Almost two fifths own a pension freedom eligible product
                                                                                                                                • Consumer Attitudes towards Retirement Income Planning

                                                                                                                                  • Passive attitude towards retirement income planning
                                                                                                                                      • Figure 30: Consumer agreement with statements regarding their pension, June 2016
                                                                                                                                    • Over half of consumers do not have a target for retirement
                                                                                                                                    • Awareness of Pension Freedoms

                                                                                                                                      • Under half understand the effects on pension freedoms
                                                                                                                                        • Figure 31: Consumer awareness of pension freedoms, June 2016
                                                                                                                                      • Similar level of knowledge among those that own DB or DC pensions
                                                                                                                                        • Figure 32: Consumer understanding of pension reform, by pension ownership, June 2016
                                                                                                                                        • Figure 33: Consumer awareness of pension freedoms, by household income, June 2016
                                                                                                                                    • Consumer Plans for Pension Fund Cash Withdrawals

                                                                                                                                      • Consumers take a conservative approach to cash withdrawals
                                                                                                                                          • Figure 34: Consumers plans to withdraw pensions cash, June 2016
                                                                                                                                        • Adding money to savings is important to over-45s
                                                                                                                                            • Figure 35: Consumer plans for spending pensions cash withdrawals, June 2016
                                                                                                                                          • Just over a quarter intend to use cash lump sum to pay debts
                                                                                                                                            • Travel providers are likely to benefit from pension reforms
                                                                                                                                            • Consumer Plans for Pension Funds

                                                                                                                                              • Third of consumers are unsure what they intend to do with their remaining pension pot
                                                                                                                                                  • Figure 36: Consumer plans for pension fund at retirement, June 2016
                                                                                                                                                • Almost a fifth of consumers intend to keep their money invested in their pension pot
                                                                                                                                                  • Similar levels of interest for both income drawdown and annuities
                                                                                                                                                  • Desired Features of Retirement Income Products

                                                                                                                                                    • Majority of over-45s want a predictable income
                                                                                                                                                      • Figure 37: Consumers’ desired features of retirement income products
                                                                                                                                                    • Hybrid products could provide the blend of products consumers want
                                                                                                                                                      • Advisers to see a resurgence in popularity
                                                                                                                                                        • Looking after family is also a concern for many
                                                                                                                                                          • Figure 38: Consumers’ desired features of retirement income, by gender, June 2016
                                                                                                                                                        • Annuities in everything but name
                                                                                                                                                          • Figure 39: Consumers’ plans for pension fund at retirement, by consumers’ desired features of retirement income, June 2016
                                                                                                                                                      • Consumer Attitudes towards Advice

                                                                                                                                                        • Pension freedoms do not seem to have had the desired affect
                                                                                                                                                            • Figure 40: Sources of advice consumer expect to use, June 2016
                                                                                                                                                          • Free advice from Government bodies is most popular source of advice
                                                                                                                                                            • Many conduct their own research
                                                                                                                                                                • Figure 41: Sources of advice consumers expect to use, by awareness of pension freedoms, June 2016
                                                                                                                                                            • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                                • Abbreviations
                                                                                                                                                                  • Consumer research methodology
                                                                                                                                                                  • Appendix – Market Size and Forecast

                                                                                                                                                                      • Figure 42: Forecast of the total value of annuities and income drawdown sales, 2011-21
                                                                                                                                                                    • Forecast methodology

                                                                                                                                                                    Companies Covered

                                                                                                                                                                    To learn more about the companies covered in this report please contact us.

                                                                                                                                                                    Retirement Income Solutions - UK - August 2016

                                                                                                                                                                    £1,995.00 (Excl.Tax)