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Saving and Investing for the Long Term - UK - February 2009

The world in early 2009 is much changed from a year earlier when Mintel’s previous Long-Term Savings & Investment report was published. A near financial meltdown in the autumn resulted in banks failing and markets faltering resulting in government intervention on a global scale. The impact on the UK financial services industry has been immense. Once great banking institutions have seen their market values fall by 90% with nationalisation of the RBS Group or Lloyds Banking Group increasingly likely. Billions of pounds of taxpayer’s money have already been spent on recapitalising these two businesses.

Lessons learnt by the Tripartite Authorities (the government, BOE and the FSA) from the run on Northern Rock in September 2007, when a lack of quick action caused savers to panic, prevented a similar situation developing in autumn 2008. Levels of deposit protection were quickly raised to £50,000 together with an implicit guarantee that all bank and building society deposits were safe. When it comes to equity-based investments, 2008 was also a tumultuous year for financial markets worldwide. Most major indices recorded decade lows with the FTSE 100 experiencing its worst year since its launch in 1984, down 31%.

This report looks at the impact of the financial turmoil on the market for long-term savings products, from cash to equity-based investments. It also examines the way in which consumer expectations of economic slowdown is affecting behaviour – whether people are increasing their ‘rainy day’ savings, or whether stretched budgets mean that day-to-day survival is more important than long-term savings. Drawing on both market data and fresh consumer research, this report presents an overview of the savings market – its size, the key trends, and the way in which it is responding to the seismic changes seen in the financial services industry.

Key issues covered in the report

  • What is the economic and investment climate?

  • How do industry executives view the current operating climate?

  • What is the state of consumer confidence and how financially active are consumers intending to be?

  • How has investment sentiment changed in recent years?

  • What savings and investment products do consumers have and what is the level of investible assets held?

  • How have consumers’ attitudes towards the security of their money changed as a result of the financial crisis?

  • What is the size of the key market sectors and how have they performed recently?

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Table of contents

  1. Issues in the Market

      • Key issues covered in the report
        • Product definitions
          • Individual savings account (ISA)
            • Fixed-interest securities
              • Investment bonds
                • Structured products
                  • Collective investments
                    • Abbreviations
                    • Future Opportunities

                      • The boomerang generation – a chance to save?
                        • The time bubble bursts
                          • Long-term savings market in uncharted territory…but it will offer opportunities
                            • Moderate savers need safe, risk-free products
                              • Engaging with the financial DIY active investor is the challenge for advisers
                                • Advisers need to be prepared for the impact of demographic changes in the next five years
                                  • Performance a major differentiator in an informed world
                                    • Workplace advice is falling short on performance
                                      • Deposit switching activity among wealthy creates new investment relationship opportunities
                                        • Product offerings need to be trusted to perform and to be transparent
                                          • A holistic approach to long-term savings is needed – with pensions playing the major role
                                          • Market in Brief

                                            • Engagement in savings and investment
                                              • Product ownership and wealth
                                                • Attitudes towards risk
                                                  • Investor behaviour
                                                    • Attitudes towards financial advice
                                                      • Sources of financial advice
                                                        • Bank bailouts and long-term saving
                                                          • Investment bonds more popular than unit trusts or OEICS
                                                            • Falling equity markets hit full-year sales of investments
                                                              • 2009 – a very difficult year in prospect
                                                                • Market leaders
                                                                  • Promotional activity
                                                                    • Distribution trends
                                                                    • Economic and Investment Climate

                                                                      • Key points
                                                                        • Economic and investment overview
                                                                          • UK in recession for first time in 16 years
                                                                            • Debt deflation set to take hold?
                                                                              • Debt repayment to become a priority?
                                                                                • Shifts in investment choices
                                                                                  • Plunging stock markets
                                                                                    • Figure 1: FTSE 100 and FTSE All-share indices, quarterly March 2000-December 2008
                                                                                  • Stock market outlook very uncertain
                                                                                    • Despite falling property markets, people still like property investment
                                                                                    • Savings and Politics

                                                                                      • Key points
                                                                                        • Too much saving in prospect?
                                                                                          • Figure 2: Consumers intended savings, investment, borrowing and debt repayment, 2002-08*
                                                                                        • Not spending – but saving is also difficult
                                                                                          • Figure 3: Spending and saving climate, 2000-08
                                                                                        • The changing demographic structure of the UK
                                                                                          • Figure 4: UK population, by age group, 1998, 2008 and 2016
                                                                                          • Figure 5: UK population, by lifestyle group, 1998-2013
                                                                                        • Mixed messages about savings and investment…
                                                                                          • …but there had been significant government-led product development
                                                                                            • Shaping the future savings landscape…
                                                                                              • …while maintaining profitability
                                                                                                • Company stability a consumer concern
                                                                                                • Consumer and Investor Sentiment

                                                                                                  • Key points
                                                                                                    • Confidence near record low
                                                                                                      • Figure 6: UK consumer confidence index, January 1988-2009
                                                                                                    • Savings and investment expected activity back in vogue
                                                                                                      • Figure 7: Consumers’ expected savings/investment activity, 2002-08
                                                                                                    • Signs of an increase in savings activity
                                                                                                      • Figure 8: Intended saving activities, Q3/Q4 2002-Q4 2008/Q1 2009
                                                                                                    • Strong rise in life and pension intentions
                                                                                                        • Figure 9: Expected life and pensions purchase activity, Q3/Q4 2002-Q4 2008/Q1 2009
                                                                                                      • Weak investor sentiment towards equities – but rise in bond sentiment
                                                                                                        • Figure 10: Expected investment activity, Q3/Q4 2002-Q4 2008/Q1 2009*
                                                                                                      • Record lows in mortgage and property intentions
                                                                                                        • Figure 11: Expected mortgage and property purchase activity, Q3/Q4 2002-Q4 2008/Q1 2009
                                                                                                      • Financial wellbeing plummets
                                                                                                        • Figure 12: Financial wellbeing, 2001-09
                                                                                                      • Economy centre stage
                                                                                                      • The Consumer – Product and Asset Ownership

                                                                                                        • Key points
                                                                                                          • Fall in net worth of household sector in 2008
                                                                                                            • Figure 13: Household net worth, 2003-08*
                                                                                                          • Strongest growth in life and pension assets between 2003-07
                                                                                                            • Figure 14: Household financial net worth, by asset type, 2003-07
                                                                                                          • Savings accounts the most favoured investment product…
                                                                                                              • Figure 15: Ownership of savings and investment products, December 2008
                                                                                                            • …but three in ten have no savings
                                                                                                              • Figure 16: Numbers of savings and investment products types held, December 2008
                                                                                                            • Around 16% of the population have investible assets in excess of £50,000
                                                                                                                • Figure 17: Overview of value of investible assets (excluding pensions and property investment), December 2008
                                                                                                              • Asset-rich individuals have broader and deeper product holdings
                                                                                                                • Figure 18: Savings and investment products owned, by value of investible assets (excluding pensions and property investment), December 2008
                                                                                                              • The benefits of broadening product ownership
                                                                                                                • Figure 19: Number of savings and investment products owned, by value of investible assets (excluding pensions and property investment), December 2008
                                                                                                            • Market Size – An Overview

                                                                                                              • Key points
                                                                                                                • Regulated retail investment product sales
                                                                                                                  • Figure 20: Number of new regulated retail investment product sales by sector, 2006-08
                                                                                                                • Investment bonds accounted for three fifths of investment sales
                                                                                                                  • Figure 21: Number of new regulated investment sales, by product type, March 2007-April 2008*
                                                                                                              • Sector Performance

                                                                                                                • Key points
                                                                                                                  • Equities losing appeal
                                                                                                                    • Figure 22: Proportion of adults holding investments in stocks and shares or unit trusts, either individually or jointly with another person, 1985-2008
                                                                                                                  • Steep decline in unit trust/OEIC net retail sales
                                                                                                                    • Figure 23: UK domiciled unit trust/OEIC net retail sales, 2000-08
                                                                                                                    • Figure 24: Changes in asset class, net retail sales unit trusts/OEICs, 2007 and 2008
                                                                                                                  • Stampede out of property funds
                                                                                                                    • ISA contributions up 8% on 2007/08
                                                                                                                      • Figure 25: New ISA business by asset class, 2000/01-2007/08
                                                                                                                    • The value of ISA funds grew by 6% in 2008
                                                                                                                      • Figure 26: Value of funds held in the two ISA components, 2004-08
                                                                                                                    • Flight to safety leads to strong gains in gilts in 2008
                                                                                                                      • Figure 27: Size of the gilts market (nominal amount outstanding), 2000-08
                                                                                                                    • Value of corporate bond funds slumps in market downturn
                                                                                                                      • Figure 28: Total assets held in UK corporate bond sector and all bond sector, 2004-08
                                                                                                                    • Investment bond appeals wanes
                                                                                                                      • Figure 29: Total number of new single-premium investment bond contracts and value of new premiums, 2002-08
                                                                                                                    • Change in capital gains tax may weaken role for investment bonds…
                                                                                                                      • …but will continue to have appeal for income seekers
                                                                                                                        • Offshore bonds still offer benefits but exposed to lack of cash deposit compensation
                                                                                                                          • Growth in structured product sales to retail investors likely
                                                                                                                          • Largest Investment Bond Providers

                                                                                                                            • Key points
                                                                                                                              • Leading providers
                                                                                                                              • Largest Fund Managers

                                                                                                                                • Key points
                                                                                                                                  • Invesco Perpetual keeps top spot
                                                                                                                                    • Figure 30: Top 20 unit trust and OEIC fund managers, by retail funds under management, December 2008
                                                                                                                                  • Fidelity takes over as leading ISA fund provider
                                                                                                                                    • Figure 31: Top 10 ISA Managers, by funds under management, December 2008
                                                                                                                                • Brand Communication and Advertising

                                                                                                                                  • Key points
                                                                                                                                    • Adspend on savings and investment products up sharply in 2007/08
                                                                                                                                      • Figure 32: Total advertising expenditure on savings and investment products, by product category 2003/04-2007/08
                                                                                                                                    • ING top advertising spender in 2008
                                                                                                                                      • Figure 33: Top 20 advertisers of savings and investment products, 2005/06-07/08
                                                                                                                                    • Television ads are suitable for simple savings products, while the trade press is relied upon more to promote more complex products
                                                                                                                                      • Figure 34: Proportional advertising expenditure on savings and investment products, by media type, 2007/08 and 2006/07
                                                                                                                                  • Selling Channels

                                                                                                                                    • Key points
                                                                                                                                      • Around 50% of investment products and ISAs sold through banks and building societies
                                                                                                                                        • Figure 35: Selling channels, by investment products and ISAs, 2007/08
                                                                                                                                      • Unit trusts and OEICs: The main routes to market
                                                                                                                                        • Intermediaries dominant sales channel for unit trusts/OEICs
                                                                                                                                          • Figure 36: Selling channels by unit trust/OEIC, gross retail sales, 2004-08
                                                                                                                                        • Fund supermarkets ahead in the ISA fund market
                                                                                                                                          • Figure 37: Gross retail sales of ISA funds, by distribution channel, 2004-08
                                                                                                                                        • Cofunds, Skandia and Funds Network leading funds platforms
                                                                                                                                          • IFAs dominate investment bond distribution
                                                                                                                                            • Figure 38: Investment bond distribution mix based on new premiums, 2004-08
                                                                                                                                          • Distribution channels by investment bond type
                                                                                                                                            • Figure 39: Investment bond distribution mix, by bond type based on new premiums, 2008
                                                                                                                                        • The Consumer – Attitudes towards Savings and Investment

                                                                                                                                          • Key points
                                                                                                                                            • Savings and investment and the current financial crisis
                                                                                                                                              • The bank bailouts and savings confidence
                                                                                                                                                  • Figure 40: Impact of bank failures and bailouts, December 2008
                                                                                                                                                • A crisis in investor confidence?
                                                                                                                                                    • Figure 41: Impact of falling stock markets on investor confidence, December 2008
                                                                                                                                                  • Each age cohort faces investment challenges
                                                                                                                                                    • A gambling instinct?
                                                                                                                                                        • Figure 42: Investor confidence and falling markets, by savings ownership, December 2008
                                                                                                                                                    • The Consumer – Attitudes towards Risk

                                                                                                                                                      • Key point
                                                                                                                                                        • Consumers may have to take on more risk
                                                                                                                                                            • Figure 43: Statements relating to attitudes towards risk, December 2008
                                                                                                                                                          • Wealth preservation is a big driver among older, more affluent age groups
                                                                                                                                                            • Great majority of population risk averse
                                                                                                                                                              • Figure 44: Number of savings and investment product types held, by attitudes towards risk, December 2008
                                                                                                                                                          • The Consumer – Sources of Saving and Investment Advice

                                                                                                                                                            • Key points
                                                                                                                                                              • Bank staff and IFAs most used for saving and investment advice
                                                                                                                                                                  • Figure 45: Sources of saving and investment advice used in the past, December 2008
                                                                                                                                                                • IFAs main source of advice used by the wealthy
                                                                                                                                                                    • Figure 46: Sources of savings and investment advice used in the past, by value of investible assets, December 2008
                                                                                                                                                                  • IFAs main source of investment advice
                                                                                                                                                                      • Figure 47: Sources of advice used in the past, by savings and investment products held, December 2008
                                                                                                                                                                    • Emergence of professionally-advised and non-advised groups among savers/investors
                                                                                                                                                                      • Professionally-advised groups, profiles:
                                                                                                                                                                        • Non-professionally-advised groups, profiles:
                                                                                                                                                                          • Banks are the leading source of advice for moderate savers
                                                                                                                                                                            • Figure 48: Number of savings and investment product types held and sources of advice used, December 2008
                                                                                                                                                                        • The Consumer – Attitudes Towards Savings and Investment Advice

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Only a quarter of consumers believe financial advisers have their customers’ best interests at heart
                                                                                                                                                                                • Figure 49: Agreement with statements about savings and investment advice, December 2008
                                                                                                                                                                              • Commission bias fears greatest among affluent 35-44-year-olds
                                                                                                                                                                                • Commission bias in workplace felt most
                                                                                                                                                                                  • Figure 50: Agreement with statements about savings and investment advice, by sources of advice used, December 2008
                                                                                                                                                                                • Greatest scepticism about financial advisers among top saver-investors
                                                                                                                                                                                  • Figure 51: Number of savings and investment product types held by Q4
                                                                                                                                                                              • The Consumer – Savings and Investment Behaviour

                                                                                                                                                                                • Key points
                                                                                                                                                                                  • Less than a third of adults believe that it is important to save for the long term
                                                                                                                                                                                      • Figure 52: Overview of statements relating to savings and investing behaviour, December 2008
                                                                                                                                                                                    • Being in work is a big incentive to save and make provision for retirement
                                                                                                                                                                                      • Savings behaviour is greatly influenced by current savings holdings
                                                                                                                                                                                        • Figure 53: Number of savings and investment product types held, by savings behaviour statements, December 2008
                                                                                                                                                                                      • Property and equity investors have most positive savings behaviour
                                                                                                                                                                                          • Figure 54: Statements relating to savings and investing behaviour, by savings and investment products owned, December 2008
                                                                                                                                                                                        • More non-advised investors worried relative to professionally advised
                                                                                                                                                                                            • Figure 55: Sources of saving and investment advice used in the past, by statements relating to savings and investing behaviour, December 2008
                                                                                                                                                                                          • Nearly a half of adults like to do their own research before making financial decisions
                                                                                                                                                                                              • Figure 56: Statements relating to savings and investing attitudes, December 2008
                                                                                                                                                                                            • Over a half of active savers/investors do their own research
                                                                                                                                                                                              • Figure 57: Number of savings and investment product types held, by savings behaviour and industry confidence, December 2008
                                                                                                                                                                                            • Media sources have major influence on some people’s investment behaviour
                                                                                                                                                                                                • Figure 58: Sources of advice used in the past, by statements relating to savings and investing attitudes, December 2008
                                                                                                                                                                                            • Appendix – The Consumer – Product and Asset Ownership

                                                                                                                                                                                                • Figure 59: Ownership of savings and investment products, by gender, age, lifestage and marital status, December 2008
                                                                                                                                                                                                • Figure 60: Ownership of savings and investment products, by socio-economic group, gross annual household income, household tenure and working status, December 2008
                                                                                                                                                                                                • Figure 61: Ownership of savings and investment products, by internet access, internet frequency, web use, newspaper readership and education, December 2008
                                                                                                                                                                                              • Number of savings and investment products held
                                                                                                                                                                                                • Figure 62: Number of savings and investment product types held, by demographics
                                                                                                                                                                                              • Value of investible assets held
                                                                                                                                                                                                • Figure 63: Overview of value of investible assets (excluding pensions and property investment), by gender, age, lifestage and marital status, December 2008
                                                                                                                                                                                                • Figure 64: Overview of value of investible assets (excluding pensions and property investment), by socio-economic group, gross annual household income, household tenure and working status, December 2008
                                                                                                                                                                                                • Figure 65: Overview of value of investible assets (excluding pensions and property investment), by internet access, internet frequency, web use, newspaper readership and education, December 2008
                                                                                                                                                                                                • Figure 66: Those who have investments in stocks and shares or unit trusts either individually or jointly with another person, December 2008
                                                                                                                                                                                                • Figure 67: Statements relating to attitudes towards risk, by gender, age, lifestage and marital status, December 2008
                                                                                                                                                                                                • Figure 68: Statements relating to attitudes towards risk, by socio-economic group, gross annual household income, household tenure and working status, December 2008
                                                                                                                                                                                                • Figure 69: Statements relating to attitudes towards risk, by internet access, internet frequency, web use, newspaper readership and education, December 2008
                                                                                                                                                                                            • Appendix – The Consumer – Sources of Advice

                                                                                                                                                                                                • Figure 70: Sources of saving and investment advice used in the past, by gender, age, lifestage and marital status, December 2008
                                                                                                                                                                                                • Figure 71: Sources of saving and investment advice used in the past, by socio-economic group, gross annual household income, household tenure and working status, December 2008
                                                                                                                                                                                                • Figure 72: Sources of saving and investment advice used in the past, by internet access, internet frequency, web use, newspaper readership and education, December 2008
                                                                                                                                                                                            • Appendix – The Consumer – Attitudes towards Savings and Investment Advice

                                                                                                                                                                                                • Figure 73: Agreement with statements about savings and investment advice, by gender, age, lifestage and marital status, December 2008
                                                                                                                                                                                                • Figure 74: Agreement with statements about savings and investment advice, by socio-economic group, gross annual household income, household tenure and working status, December 2008
                                                                                                                                                                                                • Figure 75: Agreement with statements about savings and investment advice, by internet access, internet frequency, web use, newspaper readership and education, December 2008
                                                                                                                                                                                            • Appendix – The Consumer – Saving and Investment Behaviour

                                                                                                                                                                                                • Figure 76: Statements relating to savings and investing behaviour, by gender, age, lifestage and marital status, December 2008
                                                                                                                                                                                                • Figure 77: Statements relating to savings and investing behaviour, by socio-economic group, gross annual household income, household tenure and working status, December 2008
                                                                                                                                                                                                • Figure 78: Statements relating to savings and investing behaviour, by internet access, internet frequency, web use, newspaper readership and education, December 2008
                                                                                                                                                                                                • Figure 79: Statements relating to savings and investing attitudes, by gender, age, lifestage and marital status, December 2008
                                                                                                                                                                                                • Figure 80: Statements relating to savings and investing attitudes, by socio-economic group, gross annual household income, household tenure and working status, December 2008
                                                                                                                                                                                                • Figure 81: Statements relating to savings and investing attitudes, by internet access, internet frequency, web use, newspaper readership and education, December 2008

                                                                                                                                                                                            Saving and Investing for the Long Term - UK - February 2009

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