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Workplace Pensions - UK - June 2016

“Pension providers and advisers are about to face their busiest period yet, as nearly 600,000 small and micro-sized employers reach their staging date for auto-enrolment during 2016/17 and a further 1.1 million new employers stage in 2017/18. They will need to have sufficient resources in place in order to cope with the expected sharp increase in new business.

Already, there are signs of supply issues emerging in the group pension sector, as providers struggle to meet demand. Inevitably, any capacity constraints within the group sector will benefit master trusts. This is the main competitor product to GPPs, and the main low-cost alternative for employers.”

– Sarah Hitchcock, Senior Financial Services Analyst

This report looks at the following areas:

  • Scope to increase employee contributions – on average by two percentage points
  • Help employers improve their communications with enrolled staff

The workplace pension market has been given a new lease of life since the introduction of auto-enrolment. Pension providers and advisers are seeing large increases in new business, particularly in relation to group contract-based pensions. While this is all very positive, there is a downside. Providers within the insurance-administered sector are struggling to keep pace with demand, especially now that thousands of smaller firms are reaching their staging dates and looking to set up or buy in schemes.

The capacity crunch within the contract-based sector is benefiting the trust-based sector, in particular master trusts. These have grown in popularity over the past few years. The largest of these schemes is NEST, but there at least 70 others, many of which have yet to sign up to The Pensions Regulator’s new assurance framework. While there is fairly low usage of schemes that are not part of this framework, it nevertheless raises concerns that some employers are using schemes that might not offer adequate protection and oversight. Questions have also been raised about the financial sustainability of master trusts – prompting government plans to strengthen regulation of these schemes.

Against this backdrop, employers and pension providers must manage the planned rises to minimum contribution rates over the next three years, along with any increase in the opt-out rate as a result. Mintel’s consumer research investigates this issue, by assessing current employee contribution rates versus maximum rates potentially tolerated. The survey also reveals the degree to which employees are satisfied with the information they receive from their employer and their scheme in general.

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this report
        • Trust-based pensions
          • Contract-based pensions
          • Executive Summary

              • The market
                • Auto-enrolment drives new premium growth
                  • Figure 1: Forecast of new insurer-administered trust-based pension premiums – Fan chart, 2011-21
                  • Figure 2: Forecast of new group pension premiums – Fan chart, 2011-21
                • Most workplace pension products are distributed by intermediaries
                  • Employers show a strong preference for multi-employer DC schemes
                    • Auto-enrolment ramps up
                      • New Pensions Bill announced to strengthen protection in the master trust sector…
                        • …and introduce a cap on early exit fees
                          • Financial Advice Market Review offers recommendations to help close consumer advice gap
                            • Companies and brands
                              • Standard Life, Scottish Widows and Aviva are among the leading pension providers
                                • Figure 3: Main participants in the workplace pension market and how they interrelate, 2016
                              • The insurance-administered sector is heavily consolidated
                                • There are over 70 master trusts in the UK…
                                  • …some of which have recently introduced new fees to employers
                                    • Bulk buyout market attracts new entrants
                                      • The consumer
                                        • Auto-enrolment continues to increase pension ownership
                                          • Figure 4: Proportion of employees enrolled in a workplace pension, by sector/size of employer, April 2016
                                        • Opt out rates are highest among employees of small firms
                                          • Just over a fifth of private sector workers do not know what type of pension they have
                                            • Figure 5: Type of pension enrolled in, by sector/size of employer, April 2016
                                          • Most pension holders could tolerate paying in more to their pension
                                            • Figure 6: Employee contribution rate – current rate versus maximum rate could tolerate, April 2016
                                          • Room to improve employer communications
                                            • Figure 7: Level of satisfaction with employer communications regarding pension, April 2016
                                          • Just 50% of DC pension holders know what charges apply
                                            • Figure 8: Employee understanding of key aspects of pension scheme – DC pension savers only, April 2016
                                          • Overall satisfaction level is fairly high – but there’s still room for improvement
                                            • Figure 9: Employee satisfaction with workplace pension and employer contributions, April 2016
                                          • What we think
                                          • Issues and Insights

                                            • Scope to increase employee contributions – on average by two percentage points
                                              • The facts
                                                • The implications
                                                  • Help employers improve their communications with enrolled staff
                                                    • The facts
                                                      • The implications
                                                      • The Market – What You Need to Know

                                                        • Auto-enrolment drives new premium growth
                                                          • Most new pension sales are generated by advisers
                                                            • GPPs and master trusts are the products of choice for employers
                                                              • Intensely busy period for providers and advisers ahead
                                                                • Government announces new Pensions Bill
                                                                • Market Size and Forecast – Trust-based Schemes

                                                                  • TIPs and bulk buyouts account for most new trust-based business…
                                                                    • …however the data excludes some notable master trust business
                                                                      • Figure 10: New insurer-administered trust-based pension business (volume and value), 2011-15
                                                                    • Slower growth forecast
                                                                      • Figure 11: Forecast of new insurer-administered trust-based pension premiums – Fan chart, 2011-21
                                                                      • Figure 12: Forecast of new insurer-administered trust-based pension business, 2016-21
                                                                    • Forecast methodology
                                                                    • Market Size and Forecast – Contract-based Pensions

                                                                      • New group pension sales have grown strongly over the past five years
                                                                        • Figure 13: New group pension business (volume and value), 2011-15
                                                                      • Premium income is predicted to rise strongly over the next few years, before experiencing a slowdown from 2020
                                                                        • Figure 14: Forecast of new group pension premiums – Fan chart, 2011-21
                                                                        • Figure 15: Forecast of new group pension business, 2016-21
                                                                      • Forecast methodology
                                                                      • Channels to Market

                                                                        • The workplace pension market is heavily intermediated…
                                                                          • Figure 16: Proportional distribution of new regular-premium insurer-administered trust-based and group pension business, by sales channel, 2014-15
                                                                        • …although a significant proportion of trust-based premiums are generated through direct channels
                                                                          • Figure 17: Proportional distribution of total new single-premium insurer-administered trust-based and group pension business, by sales channel, 2014-15
                                                                        • Types of intermediary and their role in the pension market
                                                                        • Trends in Workplace Pension Ownership

                                                                          • Auto-enrolment has boosted pension participation in the workplace
                                                                            • Figure 18: Proportion of employees with workplace pensions, 1997-2015
                                                                          • Growth is being driven by the DC sector
                                                                            • Figure 19: Breakdown of employees with workplace pensions, by sector and type of pension, 2015
                                                                        • Market Drivers

                                                                          • Auto-enrolment has dramatically increased the size of DC pension pool
                                                                            • Figure 20: Number of insurer-administered occupational pension scheme members and group pension policies in force, 2010-14
                                                                          • Most employers are using DC master trusts and group pensions to meet new duties
                                                                            • Figure 21: Pension scheme types and number of auto-enrolled eligible jobholders declared by employers, as at 31 March 2015
                                                                          • 6.2 million workers had been auto-enrolled by April 2016
                                                                            • Figure 22: Declarations of compliance, April 2016
                                                                          • Opt-out rates increase as smaller firms stage
                                                                            • Intensely busy period ahead for pension providers and advisers
                                                                              • Figure 23: Staging profile – number of employers subject to full duties, 2014/15-2017/18
                                                                          • Regulatory and Legislative Changes

                                                                            • As auto-enrolment ramps up, insurance providers struggle to meet demand
                                                                              • Master trusts help fill the supply gap, raising concerns about a lack of consumer protection in the sector
                                                                                • New Pensions Bill will address concerns…
                                                                                  • …and introduce a cap on early exit fees
                                                                                    • New pension freedoms prompt need for greater consumer access to advice
                                                                                    • Companies and Brands – What You Need to Know

                                                                                      • Standard Life, Scottish Widows and Aviva are the leading pension providers
                                                                                        • The insurance-administered sector is heavily consolidated
                                                                                          • There are more than 70 master trusts in the UK…
                                                                                            • …some of which have introduced new fees to employers
                                                                                              • Bulk buyout market attracts new entrants
                                                                                              • Market Structure and Key Players

                                                                                                • Employer duties
                                                                                                  • Pension supply and administration
                                                                                                    • Figure 24: Main participants in the workplace pension market and how they interrelate, 2016
                                                                                                  • Investment management
                                                                                                    • The rise of master trusts
                                                                                                    • Provider Rankings & Market Share

                                                                                                      • Just over half of all insurance-administered trust-based premiums in 2014 were generated by five providers…
                                                                                                        • Figure 25: Rankings of top 20 providers of insurance-administered trust-based occupational pension business, by gross premiums, 2014
                                                                                                      • …the individual and group contract-based business is even more consolidated
                                                                                                        • Figure 26: Rankings of top 20 providers of insurance-administered individual and group contract-based pension business, by gross premiums, 2014
                                                                                                    • Competitive Strategies

                                                                                                      • De-risking market developments
                                                                                                        • Continued growth in bulk buyout market as more employers look to reduce pension liabilities…
                                                                                                          • Figure 27: In-force bulk buyout business, 2011-14
                                                                                                        • …prompting more insurers to enter
                                                                                                          • Product news
                                                                                                            • Providers take pre-emptive action and reduce or remove early exit fees
                                                                                                              • Two of the largest master trusts introduce fees for smaller employers
                                                                                                                • Technological innovation
                                                                                                                  • Helping pension savers understand their choices at retirement
                                                                                                                    • Aviva unveils 10-minute ‘quote and apply’ system for corporate advisers
                                                                                                                    • Advertising and Marketing Activity

                                                                                                                      • Providers spend very little on above-the-line consumer advertising channels
                                                                                                                        • Figure 28: Total above-the line, online display and direct mail advertising expenditure on pension products and advice, 2011/12-2015/16
                                                                                                                      • Most pension adspend relates to TV and press advertising
                                                                                                                          • Figure 29: Distribution of above-the line, online display and direct mail advertising expenditure on pension products and advice, by media type, 2011/12-2015/16
                                                                                                                        • Providers make increasing use of social media to reach target audience
                                                                                                                          • Government agencies represent nearly half the sector’s adspend
                                                                                                                            • Figure 30: Top 15 above-the line, online display and direct mail advertisers of pension products and advice, 2014/15-2015/16
                                                                                                                          • Nielsen Ad Intel coverage
                                                                                                                          • The Consumer – What You Need to Know

                                                                                                                            • Auto-enrolment continues to increase pension ownership
                                                                                                                              • Opt out rates are highest among employees of small firms
                                                                                                                                • Just over a fifth of private sector workers do not know what type of pension they have
                                                                                                                                  • Most pension holders could tolerate paying in more to their pension
                                                                                                                                    • Room to improve employer communications
                                                                                                                                      • Just 50% of DC pension holders know what charges apply
                                                                                                                                      • Size and Sector of Employer

                                                                                                                                        • 22% of employees work for small private-sector firms
                                                                                                                                          • Figure 31: Sector and size of employer worked for, April 2016
                                                                                                                                        • A small proportion of employees work for two or more different types of employer
                                                                                                                                          • Many small businesses are expected to impose pay cuts and freezes
                                                                                                                                          • Pension Enrolment

                                                                                                                                            • Two thirds of employees are enrolled in a workplace pension
                                                                                                                                              • Figure 32: Proportion of employees enrolled in a workplace pension, by sector/size of employer, April 2016
                                                                                                                                            • Opt-out rates are noticeably higher among employees of small and medium-sized firms
                                                                                                                                              • Auto-enrolment is helping to close the gender gap
                                                                                                                                              • Type of Workplace Pension

                                                                                                                                                • A large proportion of private-sector workers are confused about what type of pension they have
                                                                                                                                                  • Figure 33: Type of pension enrolled in, by sector/size of employer, April 2016
                                                                                                                                              • Employee Contribution Rate

                                                                                                                                                • Most workplace pension savers are contributing more than the current minimum
                                                                                                                                                  • Figure 34: Employee contribution rate, April 2016
                                                                                                                                                • Possible confusion over percentage of gross pay versus qualifying earnings
                                                                                                                                                  • Nearly one in four workplace pension holders are contributing less than 4%
                                                                                                                                                    • A significant minority do not know what level they are contributing
                                                                                                                                                      • Figure 35: Employee contribution rate, by type of pension, April 2016
                                                                                                                                                    • Average contribution rate is broadly the same for private sector employees whether they work for a small, medium or large firm
                                                                                                                                                      • Figure 36: Employee contribution rate, by sector/size of employer, April 2016
                                                                                                                                                    • The average workplace pension saver could tolerate their contribution rate increasing by no more than two percentage points
                                                                                                                                                      • Figure 37: Employee contribution rate – current rate versus maximum rate could tolerate, April 2016
                                                                                                                                                    • Only a very small proportion of existing DC pension savers say they could not stomach their contribution rate rising to 4%
                                                                                                                                                    • Satisfaction with Employer Communications

                                                                                                                                                      • 15% of workplace pension holders rate their employer communications as ‘poor’ or ‘very poor’
                                                                                                                                                        • Figure 38: Level of satisfaction with employer communications regarding pension, by sector/size of employer, April 2016
                                                                                                                                                      • 57% of workplace pension holders have access to a helpline…
                                                                                                                                                          • Figure 39: Employee access to pension advice and to pension scheme online, April 2016
                                                                                                                                                        • …and 40% can make changes to their pension online
                                                                                                                                                          • Employees value having good access to pensions information and advice
                                                                                                                                                            • Figure 40: Employee access to pension advice and to pension scheme online, by level of satisfaction with employer communications, April 2016
                                                                                                                                                        • Level of Understanding and Overall Satisfaction with Scheme

                                                                                                                                                          • Significant scope to improve consumer education
                                                                                                                                                            • Figure 41: Employee understanding of key aspects of pension scheme, April 2016
                                                                                                                                                          • Just half of all DC pension savers know what charges and fees they are paying
                                                                                                                                                            • Figure 42: Employee understanding of key aspects of pension scheme, April 2016
                                                                                                                                                          • Around one in seven are dissatisfied with their workplace pension
                                                                                                                                                              • Figure 43: Employee satisfaction with workplace pension and employer contributions, April 2016
                                                                                                                                                          • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                            • Framework for workplace pensions
                                                                                                                                                              • Figure 44: Framework for workplace pensions – Private sector, 2016
                                                                                                                                                            • Occupational schemes
                                                                                                                                                              • Contract-based workplace pensions
                                                                                                                                                                • Scheme type
                                                                                                                                                                  • Defined-benefit (salary-related) schemes
                                                                                                                                                                    • Defined-contribution (money-purchase) schemes
                                                                                                                                                                      • Other relevant definitions
                                                                                                                                                                        • Abbreviations
                                                                                                                                                                          • Consumer research methodology
                                                                                                                                                                          • Appendix – Market Size and Forecast

                                                                                                                                                                            • Trust-based sector forecast – best- and worst-case scenarios
                                                                                                                                                                              • Figure 45: Forecast of new insurer-administered trust-based pension premiums – best- and worst-case scenarios, at current prices, 2016-21
                                                                                                                                                                            • Contract-based sector forecast – best- and worst-case scenarios
                                                                                                                                                                              • Figure 46: Forecast of new group pension business – best- and worst-case scenarios, at current prices, 2016-21
                                                                                                                                                                            • Forecast Methodology

                                                                                                                                                                            Companies Covered

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

                                                                                                                                                                            Workplace Pensions - UK - June 2016

                                                                                                                                                                            US $2,583.33 (Excl.Tax)