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Retirement Income Solutions - UK - August 2017

“Despite fears that abolishing compulsory annuitisation would sound a death knell to a market already facing major challenges, Mintel’s research shows that there is still a core group of DC pension savers who are keen on considering an annuity as part of their retirement plans.”
– Sarah Hitchcock, Senior Finance Analyst

This report looks at the following areas:

  • The new popular trend to fully withdrawing pots is the biggest threat to the retirement income market
  • Are blended solutions the way forward?

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Table of contents

  1. Overview

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

          • The market
            • Drawdown sales soar while demand for annuities continues to fall
              • Figure 1: Forecast of new retirement income sales – fan chart, 2012-22
            • Retirement income products are more likely to attract those with larger pots
              • Figure 2: Number of DC pension pots accessed for the first time, split by usage, 2015 Q4-2016 Q3
            • Greater demand for annuities with a guarantee period
              • Those taking advice are more likely to buy on the open market
                • Growth in non-advised drawdown sales
                  • Long-term decline in annuity rates
                    • Plans for a second-hand annuity market aborted
                      • Companies and brands
                        • Low levels of competition in the annuity market
                          • Many providers have left the open market or withdrawn altogether
                            • Providers are shifting focus onto drawdown and hybrid solutions
                              • Reduced innovation since pension freedoms introduced
                                • The consumer
                                  • Pension ownership
                                    • Figure 3: Ownership of single and multiple pension pots, by gender and age, June 2017
                                  • More than half of those aged 55+ have already accessed their pension savings
                                    • 21% of under-65s plan to access their pension early…
                                      • Figure 4: When DC pension holders expect to access their pension (under-65s only), June 2017
                                    • …although the actual timing will be influenced by a range of factors
                                      • Figure 5: Factors most likely to influence when pension holders access their pension, June 2017
                                    • 35% would consider withdrawing the full amount
                                      • Figure 6: Decumulation options likely to consider, June 2017
                                    • 66% are confused about their options
                                      • Figure 7: Agreement with statements about retirement options, June 2017
                                    • 55% are worried about making the wrong decision
                                      • Figure 8: Concerns regarding pension options at retirement, June 2017
                                    • 50% are interested in the new pension advice allowance
                                      • Figure 9: Awareness of and interest in pension advice allowance, June 2017
                                    • What we think
                                    • Issues and Insights

                                      • The new popular trend to fully withdrawing pots is the biggest threat to the retirement income market
                                        • The facts
                                          • The implications
                                            • Are blended solutions the way forward?
                                              • The facts
                                                • The implications
                                                • The Market – What You Need to Know

                                                  • Retirees showing much greater preference for drawdown than annuities
                                                    • Those with larger value pots are more inclined to buy a retirement income product
                                                      • More annuities being bought with a guarantee period
                                                        • Those taking advice are more likely to buy on the open market
                                                          • Mix of factors driving down annuity rates
                                                            • Plans for a second-hand annuity market abandoned
                                                            • Market Size and Forecast

                                                              • Drawdown sales now far outnumber those of annuity
                                                                • Figure 10: Volume of new annuity and income drawdown sales, 2012-16
                                                              • Income drawdown continues to grow its share of total retirement income premiums
                                                                • Figure 11: Value of new annuity and income drawdown premiums, 2013-16
                                                              • Sales forecast
                                                                • Figure 12: Forecast of new retirement income sales – fan chart, 2012-22
                                                                • Figure 13: Forecast of new retirement income sales, 2012-22
                                                              • Forecast methodology
                                                              • Pension Pots Accessed

                                                                • Full cash withdrawal is the most popular option…
                                                                  • Figure 14: Number of DC pension pots accessed for the first time, by usage, 2015 Q4- 2016 Q3
                                                                • …especially among those with pots under £10,000
                                                                    • Figure 15: Proportion distribution of customers by pot size and usage, 2016 Q2 and 2016 Q3 combined
                                                                  • Drawdown has become more popular – including among those with smaller pots
                                                                    • First-time annuity customers have an older age profile than those entering drawdown
                                                                      • Figure 16: Proportion distribution of customers by age and usage, 2016 Q2 and 2016 Q3 combined
                                                                    • At least £11 billion withdrawn from pensions since freedom reforms were introduced
                                                                      • Figure 17: Flexible payments from pensions, 2015 Q2-2017 Q1
                                                                  • Annuity Market Segmentation

                                                                    • Enhanced annuities account for a third of sales
                                                                      • Greater proportion of annuities now sold with a guarantee period
                                                                        • Figure 18: Annuity sales by product type, 2015-16
                                                                    • Channels to Market

                                                                      • More than half of all annuity and drawdown sales are internal
                                                                        • Figure 19: Breakdown of annuity and income drawdown sales by internal and external, 2014-16
                                                                      • Around three quarters of annuities are sold without advice
                                                                        • Figure 20: Number of new annuity sales, by channel, 2014-16
                                                                      • Large increase in non-advised sales of drawdown
                                                                        • Figure 22: Number of new drawdown sales, by channel, 2014-16
                                                                      • Intermediary definitions
                                                                      • Market Drivers

                                                                        • Around 22 million DC pensions in force at the end of 2015
                                                                          • Figure 24: Number of individual and group pensions in-force and number of occupational DC members, 2003-15
                                                                        • 8 million workers have so far been auto-enrolled
                                                                          • Ultra-low annuity rates are encouraging more retirees to enter drawdown
                                                                            • More choice increases the need for consumer education
                                                                              • Greater provider interest in blended solutions, but not all have got the model right
                                                                                • Rising demand for fixed-term annuities
                                                                                • Regulatory and Legislative Changes

                                                                                  • FCA’s Retirement Outcomes Review interim report – accessing pension pots early has “become the norm”
                                                                                    • Annuity providers must prompt customers to shop around
                                                                                      • DWP decides against letting NEST enter the drawdown market
                                                                                        • Government aborts plans to introduce a second-hand annuity market
                                                                                          • 1% charge cap on early exit fees comes into force
                                                                                            • Three separate advisory bodies to merge into one service
                                                                                              • Treasury introduces ‘multiple uses’ pension advice allowance
                                                                                                • Prototype of Pensions Dashboard goes live
                                                                                                • Companies and Brands – What You Need to Know

                                                                                                  • Low levels of competition in the annuity market
                                                                                                    • Many providers have left the open market or withdrawn altogether
                                                                                                      • Shifting focus onto drawdown and hybrid solutions
                                                                                                        • Limited innovation since pension freedoms introduced
                                                                                                        • Key Players and Market Movers

                                                                                                          • More than 50 firms supply retirement income products
                                                                                                            • Largest annuity providers
                                                                                                              • Recent sales performance
                                                                                                                • Figure 25: New annuity business, by the largest providers, 2016
                                                                                                              • Contraction in supply of annuities on the open market
                                                                                                                • Many more companies active in the drawdown market
                                                                                                                • Competitive Strategies and Innovation

                                                                                                                  • Providers switch focus to retirement accounts and drawdown products
                                                                                                                    • Prudential launches Retirement Account
                                                                                                                      • New hybrid products are experiencing varying levels of success
                                                                                                                        • Royal London introduces new tools to help drawdown customers
                                                                                                                          • Phoenix launches compulsory annuity comparison service
                                                                                                                            • Digital innovation
                                                                                                                              • New tools to educate pension savers about their retirement options
                                                                                                                                • Royal London launches a new pension Review Service
                                                                                                                                • The Consumer – What You Need to Know

                                                                                                                                  • Auto-enrolment has substantially boosted the number of pension savers
                                                                                                                                    • A fifth plan to access their pension early
                                                                                                                                      • Greater interest in annuities than drawdown among those yet to retire
                                                                                                                                        • 79% of DC pension savers want their pot to last their entire retirement…
                                                                                                                                          • …while 36% are worried they might be tempted to withdraw and spend their savings too early
                                                                                                                                            • 50% are interested in using the new pension advice allowance
                                                                                                                                            • Pension Ownership and Access

                                                                                                                                              • 84% of full-time employees have a pension
                                                                                                                                                • Having multiple pension pots is fairly common
                                                                                                                                                  • Figure 26: Ownership of single and multiple pension pots, June 2017
                                                                                                                                                • More respondents say they have a DB than a DC pension
                                                                                                                                                  • Figure 27: type of pension owned, by number of pension pots, June 2017
                                                                                                                                                • DC pension savers are even more likely to have multiple pots
                                                                                                                                                  • Figure 28: Proportion of pension savers with a single pot versus two or more pots, by type of pension, June 2017
                                                                                                                                                • Many of those aged 55+ have already accessed their pension savings
                                                                                                                                                  • Figure 29: Proportion of DC pension-holders aged 55+ who have accessed pension pot, June 2017
                                                                                                                                              • Age Expecting to Access Pension and Influencing Factors

                                                                                                                                                  • Figure 30: When DC pension holders expect to access their pension (under-65s only), June 2017
                                                                                                                                                • A fifth intend to access their pot before state pension age…
                                                                                                                                                  • …and nearly half say the timing will be dependent on their health…
                                                                                                                                                    • …although a mix of factors will come into play
                                                                                                                                                      • Figure 31: Factors most likely to influence when pension holders access their pension, June 2017
                                                                                                                                                  • Decumulation Options Likely to Consider

                                                                                                                                                    • Interest in annuities is greater than drawdown
                                                                                                                                                      • Figure 32: Decumulation options likely to consider, June 2017
                                                                                                                                                    • 35% of DC pension holders would consider withdrawing the full amount
                                                                                                                                                    • Attitudes and Expectations about Pension Options

                                                                                                                                                      • Only half of all DC pension holders are likely to seek retirement advice
                                                                                                                                                        • Figure 33: Agreement with statements about retirement options, June 2017
                                                                                                                                                      • Strong interest in options that suit a phased retirement approach
                                                                                                                                                      • Consumer Concerns

                                                                                                                                                        • Top concern is not having saved enough for a comfortable retirement
                                                                                                                                                            • Figure 34: Concerns regarding pension options at retirement, June 2017
                                                                                                                                                          • 55% worry about making the wrong decision
                                                                                                                                                            • 31% are concerned that they don’t know where to go for advice
                                                                                                                                                            • Awareness of and Interest in Pension Advice Allowance

                                                                                                                                                                • Figure 35: Awareness and interest in pension advice allowance, June 2017
                                                                                                                                                            • Appendix – Data Sources and Abbreviations

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

                                                                                                                                                                    • Total market forecast – best- and worst-case scenarios
                                                                                                                                                                      • Figure 36: Forecast of total retirement income sales – best- and worst-case scenarios, 2017-22
                                                                                                                                                                    • Annuity sector forecast – volume
                                                                                                                                                                      • Figure 37: Forecast of new annuity sales – fan chart, 2012-22
                                                                                                                                                                      • Figure 38: Forecast of of new annuity sales – best- and worst-case scenarios, 2017-22
                                                                                                                                                                    • Annuity sector forecast – value
                                                                                                                                                                      • Figure 39: Forecast of new annuity premiums – fan chart, 2012-22
                                                                                                                                                                      • Figure 40: Forecast of new annuity premiums – best- and worst-case scenarios, 2017-22
                                                                                                                                                                    • Drawdown sector forecast – volume
                                                                                                                                                                      • Figure 41: Forecast of new drawdown sales – fan chart, 2012-22
                                                                                                                                                                      • Figure 42: Forecast of drawdown sales – best- and worst-case scenarios, 2017-22
                                                                                                                                                                    • Forecast methodology

                                                                                                                                                                    Companies Covered

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

                                                                                                                                                                    Retirement Income Solutions - UK - August 2017

                                                                                                                                                                    US $2,672.70 (Excl.Tax)