2021
9
UK Annuities and Income Drawdown Market Report 2021
2021-10-26T04:25:35+01:00
OX1049151
2195
143886
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Report
en_GB
“The market for retirement income products is diverse and, potentially, large. The challenge for providers is to create an environment where pension savers can easily look into all their options…

UK Annuities and Income Drawdown Market Report 2021

£ 2,195 (Excl.Tax)

Description

Providing the most comprehensive and up-to-date information and analysis of the UK Annuities and Income Drawdown Market Report market, including the behaviours, preferences and habits of the consumer.

Over the past two years, there has been an increase in the number of people delaying retirement as a result of the disruption caused by the COVID-19 pandemic. Others have been prompted to move into the decumulation phase earlier than intended, as a result of redundancy or furlough. Neither of these trends have benefitted the retirement income market, with both lifetime annuities and income drawdown sales seeing double-digit declines in 2020. However, some providers have reported a surge in demand for fixed-term annuities, as retirees have sought intermediate solutions during the crisis.

31% of DC pension savers aged 55-64 have accessed at least some of their pension savings. At the other end of the spectrim, 40% of over-65’s have yet to access any. This demonstrates the diverse natures of the decumulation market, with large numbers of people keen to dip into their savings early and many others choosing to keep their funds invested well beyond retirement age.

Sales volumes for both retirement income products are set to recover. However, the long-term decline in annuity rates remains the biggest threat to the annuities and draw down market. While increasing interest rates to help combat inflation could provide reprieve in the short to medium term, rates are unlikely to recover much of what they have lost over the past two decades.

Drawdown offers the greatest opportunity for growth. However, as Mintel’s research shows, many people want a mix of guaranteed income and flexibility. This shows there is good scope to expand the market for blended solutions and hybrid options. More innovation is needed, though, to realise this potential, along with greater regulatory and adviser support.

Read on to discover more details or take a look at all of our UK Finance market research.

Quickly understand

  • The impact of COVID-19 on the market for retirement income products.
  • The size of the market for retirement income products.
  • Understanding what people want from their pension savings at decumulation.
  • Use of regulated advice and guidance by those approaching or at retirement.
  • Consumer engagement and confidence in making decisions about their pension savings.
  • Annuities and Income Drawdown UK.
  • Retirement income products.

Covered in this report

Brands: Legal & General, Scottish Widows, Lloyds Banking Group, Aviva, Canada Life, Just Group, LV=, Aegon, Standard Life, Hodge, Prudential, BlackRock.

Expert analysis from a specialist in the field

This report, written by Sarah Hitchcock, a leading analyst in the Financial sector, delivers in-depth commentary and analysis to highlight current trends and add expert context to the numbers.

The market for retirement income products is diverse and, potentially, large. The challenge for providers is to create an environment where pension savers can easily look into all their options and feel confident of their choices, while at the same time develop products that meet the needs of future retirees. With retirement timeframes lengthening all the time, there is a growing necessity for accessible solutions that blend the best features of both annuities and drawdown.

Sarah Hitchcock
Associate Consultant – Financial Services

Table of Contents

  1. Overview

    • Key issues covered in this Report
    • COVID-19: market context
    • Economic and other assumptions
    • Products covered in this Report
    • Types of pension annuity
    • Intermediary definitions
  2. Executive Summary

    • Impact of COVID-19 on the retirement income market
      • Figure 1: Short-, medium- and long-term impact of COVID-19 on the retirement income market, September 2021
    • The market
    • Outbreak of pandemic prompts a steep fall in sales
    • Demand for retirement income products starts to lift in 2021…
    • …but a full recovery will take at least two years
      • Figure 2: COVID-19 scenario forecast for annuity sales, 2016-26
    • Drawdown will continue to offer best prospects for future growth
      • Figure 3: COVID-19 scenario forecast for drawdown sales, 2016-26
    • Non-advised channels attract greater share of new business during pandemic
      • Figure 4: Non-advised sales’ share of total sales, by product type (ABI members only), 2014-20
    • Around three fifths of pension pots accessed for the first time are for full or partial cash withdrawal
    • Expected increase in interest rates should improve the appeal of annuities
    • Companies and brands
    • A contraction in supply has reduced competition in the annuity market
    • The drawdown market is larger and more competitive
    • Most annuity providers experienced a fall in sales in 2020
    • Blended solutions have yet to really take off
    • The consumer
    • 78% of UK adults have accumulated pension savings
      • Figure 5: Type of pension owned – all pension savers, 2021
    • 40% of over-65s have yet to access any of their pension savings
      • Figure 6: Pension access by DC pension savers aged 55+, 2021
    • One in five over-55s who’ve accessed their pension without advice or guidance now regret doing so
    • 64% of under-35s plan to access their pension savings as soon as they’re allowed to
      • Figure 7: Plans to access pension at minimum pension age – under-55s, by age, 2021
    • Many pension savers want the best of both worlds
      • Figure 8: Top five most important features of a retirement income product, by age, 2021
    • Most pension savers appreciate the risks involved in withdrawing too much too soon
      • Figure 9: Agreement with statements about pension options at retirement, 2021
  3. Issues and Insights

    • Innovation is needed to reinvigorate the market
    • Pandemic leads to lower demand for both annuities and drawdown
    • Pension savers remain cautious
    • Solutions that offer flexibility and some security of income will have broad appeal…
    • …providing consumers know of their existence
    • Pension dashboards should incentivise annuity purchase
  4. The Market – Key Takeaways

    • Annuity sales drop to a new historic low as a result of the pandemic
    • COVID-19 interrupts drawdown’s meteoric growth rise
    • Market will recover steadily as many consumers remain cautious
    • Four in five annuities were sold without advice in 2020
    • People who seek guidance are more likely to consider an annuity
  5. Market Size and Performance

    • Pandemic prompts a fall in sales
      • Figure 10: Short-, medium- and long-term impact of COVID-19 on the retirement income market, 2021
    • Drawdown remains the preferred option for retirement income
      • Figure 11: Number of new pension annuity and drawdown sales (ABI members only), 2014-21
    • FCA data shows that drawdown sales peaked at 213,000 in 2019
      • Figure 12: Number of new drawdown sales – comparison of ABI and FCA data, 2014-21
      • Figure 13: Number of new pension annuity and drawdown sales – chart, 2014-21
    • Value of drawdown premiums down by almost 60% in 2020
      • Figure 14: Value of new annuity and income drawdown premiums (ABI members only), 2014-20
  6. Market Forecast

    • Volume sales of annuities forecast to stabilise
      • Figure 15: Market forecast for annuity sales, 2016-26
    • Demand for drawdown will recover strongly
      • Figure 16: Market forecast for drawdown sales, 2016-26
  7. COVID-19 Scenario Performance

    • Mintel’s approach to predicting the impact of COVID-19
    • Fundamental differences in how COVID-19 is affecting consumer markets
    • Annuities forecast: three scenarios
      • Figure 17: COVID-19 scenario forecasts for annuity sales, 2016-26
    • A rapid recovery scenario will lead to higher inflation, and potentially, interest rate rises
    • Drawdown forecast: three scenarios
      • Figure 18: COVID-19 scenario forecasts for drawdown sales, 2016-26
    • An extended disruption scenario will affect stockmarket performance and weaken confidence
    • COVID-19 market disruption: risks and outcomes
      • Figure 19: Summary of Mintel scenario expectations and the impact on the retirement income market, 2021
  8. Market Segmentation

    • Enhanced annuities continue to account for a growing share of new sales…
    • …while those with a guaranteed payment period fall further out of favour
      • Figure 20: Annuity sales, by product type, 2019 and 2020
    • Level-only annuities are much more popular than escalating annuities
    • Most drawdown products are SIPPs
  9. Channels to Market

    • Annuity rates fell to an all-time low in 2020, prompting more customers to shop around
      • Figure 21: Annuity and drawdown – internal versus external sales (ABI members only), 2018-20
      • Figure 22: Annuity and drawdown – proportional distribution of internal versus external sales (ABI members only), 2018-20
    • Four fifths of annuities are sold without advice
      • Figure 23: Annuity sales, by sales channels (ABI members only), 2014-20
    • Advisers generate the lion’s share of drawdown sales
      • Figure 24: Drawdown sales, by channel (ABI members only), 2014-20
    • A greater share of products sold via the non-advised channel during the pandemic
      • Figure 25: Non-advised sales’ share of total sales, by product type (ABI members only), 2014-20
  10. Market Drivers

    • Pension participation among employees stabilises at 78%
    • 56% of all pension pots accessed in 2019/20 were fully withdrawn
      • Figure 26: Number of DC pension pots accessed for the first time, by usage, 2018/19 and 2019/20
    • Many fail to take guidance or advice before accessing their pension
      • Figure 27: Number of DC pension pots accessed for the first time, by use of advice or guidance, 2019/20
    • Earlier-than-intended rise in bank base rate will boost demand for annuities
      • Figure 28: UK 10-year Gilt rate – annual average, 2001-21
  11. Regulatory and Legislative Changes

    • Pension freedoms age to rise to 57 before the end of the decade
    • Rules on investment pathways come into force
    • Pensions dashboard delayed to 2023
  12. Companies and Brands – Key Takeaways

    • Annuity market is highly consolidated…
    • …while the drawdown market is much more competitive
    • Mixed performance among largest annuity providers in 2020
    • Blended solutions have yet to capture the public’s attention
  13. Key Providers and Competitive Environment

    • Annuity market exhibits low levels of competition…
    • …partly as a result of market consolidation
    • Hodge is the latest to withdraw…
    • …and then there were five
    • Recent sales performance of the largest annuity providers
      • Figure 29: New annuity business, by providers active in the open market, 2019 and 2020
    • Drawdown market continues to attract new entrants
  14. Strategy and Innovation

    • Providers adapt to the challenges posed by the pandemic
    • Simplifying the journey to retirement with in-scheme drawdown
    • Future of annuities rests on the development of blended solutions
  15. The Consumer – Key Takeaways

    • Pension dashboards will help people make better choices
    • DC pension savers require wide-ranging solutions not a one-size-fits-all approach
    • Opportunity exists to develop blended products for the mass market
    • Many over-55s don’t know what to do with their pension savings
  16. Impact of COVID-19 on Consumer Behaviour

    • A third of 55-64s are feeling worse off compared to a year ago…
      • Figure 30: Trends in financial situation compared to a year ago, by age, 2021
    • …and 13% are finding it hard to make ends meet
      • Figure 31: Financial implications of the pandemic, by age, 2021
    • One in seven over-45s have altered their retirement plans due to COVID-19
      • Figure 32: Impact of COVID-19 on retirement plans – over-45s, by age, 2021
  17. Pension Ownership

    • Four in five UK adults have accumulated pension savings
      • Figure 33: Pension ownership among UK adults, by working status, 2021
    • Full-time workers record the highest take-up and participation rates
    • 37% of pension savers with a workplace pension have a DB scheme…
      • Figure 34: Type of workplace pension owned, 2021
    • …although DC pensions are, by far, the most common type held
      • Figure 35: Type of pension owned – all pension savers, 2021
    • More than a third of pension holders are not currently making any contributions…
    • …of whom most are over-55s
      • Figure 36: Proportion of pension savers who are currently making contributions, by type of pension, 2021
  18. Pension Access among Over-55s

    • Nearly a third of pension savers aged 55-64 have accessed at least one pot…
    • …while 40% of over-65s have yet to touch any of their pension savings
      • Figure 37: Pension access by DC pension savers aged 55+, 2021
    • Multiple smaller pot holders are more tempted to access their pension savings early
      • Figure 38: Type of pension access, 2021
  19. Usage of Advice and Guidance

    • 9% of over-55s who’ve accessed their pension regret not seeking advice or guidance beforehand
      • Figure 39: Whether or not sought advice or guidance before accessing pension, 2021
    • FCA data similarly shows limited take-up of the Pension Wise service
  20. Profile of the Over-55 Target Market

    • 62% of over-55s who’ve not accessed their pension are still working
    • Most working over-55s who’ve accessed their pension are self-employed
    • 10% of over-55s who’ve accessed their pension are only just managing
      • Figure 40: Profile of over-55s who have accessed their pension versus those who have not, 2021
  21. Pension Access Intentions

    • Majority of younger savers plan to access their pension savings as soon as they’re allowed to…
    • …but this falls to just 29% among more prudent 45-54 year olds
      • Figure 41: Plans to access pension at minimum pension age by under-55s, 2021
    • A significant number of over-55s don’t know what to do with their pension savings
      • Figure 42: How intend to access pension savings among those who have yet to do so, by age and pension type, 2021
    • One in nine over-55s intend to leave pension savings untouched
    • Personal pension holders show greater interest in drawdown
    • 13% of over-55s don’t know when or how they will access their pension
      • Figure 43: How under-55s intend to access their pension savings, 2021
    • Under-55s find drawdown more appealing than buying an annuity
    • Three in four intend to seek guidance or advice
      • Figure 44: Intentions to seek advice or guidance before accessing pension, 2021
  22. Most Important Product Features

    • Annuities offer a crucial feature: a guaranteed income for life
      • Figure 45: Most important features of a retirement income product, 2021
    • 49% of the target market are potentially interested in blended solutions
      • Figure 46: Proportion of DC pension savers who represent potential targets for annuity and drawdown products, 2021
  23. Attitudes towards Retirement and Pension Options

    • Many are not confident of having adequate pension savings to support their retirement
      • Figure 47: Agreement with statements about pension savings and other sources of retirement income, 2021
    • One in seven fail to appreciate the risks involved in early pension withdrawal
      • Figure 48: Agreement with statements about pension options at retirement, 2021
  24. Appendix – Abbreviations and Data Sources

    • Abbreviations
    • Consumer research methodology
  25. Appendix – Central Forecast Methodology

    • Market forecast data table
      • Figure 49: Volume sales of annuities and drawdown plans, 2016-26
    • Market drivers and assumptions
      • Figure 50: Key drivers affecting Mintel’s market forecast, 2020-25
    • Forecast methodology
  26. Appendix – COVID Scenario Performance Methodology and Assumptions

    • Scenario performance
      • Figure 51: COVID-19 scenario forecasts for annuity sales, 2016-26
      • Figure 52: COVID-19 scenario forecasts for drawdown sales, 2016-26
    • Rapid COVID recovery, central and extended COVID disruption scenarios outline
    • Scenario methodology

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