UK Individual and Group Pensions 2009

Overview 1
Catalyst 1
Summary 1
EXECUTIVE SUMMARY 2
Table of Contents 3
Table of figures 4
Table of tables 5
THE FUTURE OF THE UK PENSIONS MARKET 6
Introduction 6
Personal pensions and SIPPs continue to dominate the pensions market 6
The rise and rise of SIPPs have been subdued by the state of the economy 6
The regular premium market saw slight growth amid economic turmoil 7
The group personal pensions market has seen healthy growth over the past five years 7
Investor desire for self-control has been a driver for choice of product 8
Distributing SIPPs on an efficient wrap platform will give investors increased tax-efficiency and convenience 9
New SIPP powers to hold protected rights will increase flexibility and investment choice for consumers 9
Greater clarity of SIPPs is needed to prevent a mis-selling scandal 10
The increasing interest in SIPPs does not necessarily signal an end for personal and stakeholder pensions 10
Group personal pensions may play a key role in pensions beyond the introduction of Personal Accounts in 2012 12
Group SIPPs are expected to flourish, but their emergence should be treated with caution 12
The group SIPP market offers members a flexible and engaging product, with a range of investment options tailored to suit the different needs of members 13
There remain differences of opinion in the industry about the group SIPP product 13
Industry views of a group SIPP proposition depend on the provider's existing market 13
Most people are not well equipped to deal with the costs and risks involved in private pension provision 15
People must be able to separate the concepts of building up a pension fund and receiving pension income 15
Individuals are increasingly on their own in planning for retirement and need to understand the risks that they will shoulder 16
The universally accepted belief that over the long term equities deliver good private pensions may be in question 17
Demographic trends are making pension savings a necessity 18
People need to save for their retirement, but they are hindered by the perception of affordability 20
People are not prepared to take on higher pension savings during a market downturn 20
People need to be educated about striking the right balance between short- and long-term savings 20
Affordability and short-term views act as compound barriers to pension savings 21
People are not saving for the future, assuming they will be looked after by the buckling state system 22
Government reforms will not do enough to help individuals save for retirement 23
Individuals face bigger burdens on private savings to produce good pensions 23
The government hopes that Personal Accounts will address the problems of long-term retirement savings 24
Personal Accounts are unlikely to hit the target 25
The government is continually showing a lack of continuity on pension policy, undermining its importance 25
Public-sector pension reform is a slow and controversial process and may not boost pension savings 25
Leveling down employers' contribution through the Personal Accounts scheme will make pension provision worse 26
Employers may be tempted to minimize costs of Personal Accounts through lower employee salaries 26
However, a contributions ceiling has been set to prevent the weakening of existing pensions provision 26
The government should still ensure that it pays to save against the impact of means-testing 27
The government and industry must put more personal responsibility on consumers regarding retirement planning 27
The effectiveness of Personal Accounts is uncertain, and the market is becoming increasingly polarized between stakeholder and SIPP pensions 27
The pensions market faces regulatory changes from the Retail Distribution Review 28
The RDR will increase the quality of advice and promote transparency of charges in retirement planning 28
The RDR initiative aims to address current market failures 28
The latest proposal outlines a clear distinction between 'sales' and 'advice' 29
Customer-agreed remuneration will allow competitive forces to work in favor of consumers 29
Providers should take note of the need for a money guidance service for greater consumer access to retirement planning tools 30
The FSA alleges that many consumers may have been given the wrong pensions advice 30
THE FUTURE OF PRODUCT INNOVATION IN PENSIONS 31
Prudential and Standard Life head the competition in the pensions market 31
Prudential sits at the top spot in the single premium pensions market 31
Much of Prudential's strength comes from its launch of PruFund and PruSelect in late 2008 31
Prudential regularly reviews its business processes throughout market turmoil and has come out with positive perceptions from IFAs 31
Prudential has maintained IFAs' confidence in its financial stability 33
Standard Life dominates the regular premium pensions market in 2008 35
Standard Life offers customer-relevant solutions to address tough market conditions 35
Standard Life has created strong customer-focused brand platforms that engage its audience through the 'Active Money' SIPP 36
Innovative strategies from providers must address people's barriers to save 38
Affordability is a great concern amongst non-savers 38
Variable annuities can increasingly becoming part of a retirement and investment plan 39
Targeted marketing, rather than new product development, must be the focus 40
Providers and advisors should encourage people to exercise personal responsibility 40
Those who do not have a route into a pension scheme can always look into alternatives to pension saving 40
Individual Savings Accounts 41
Venture Capital Trusts 41
Property 42
Providers should target those approaching retirement who want to secure their retirement ambitions 43
Accumulators are aged between 50 and 59, but have lifestage complexity 43
Accumulators want their individual needs recognized with a personal service and are attracted to convenience 44
Providers should reward accumulators to incentivize this segment to save 45
Providers should also target those with aspirations of accumulating wealth 46
The pensions industry is missing the opportunity to harness the aspirer market 47
Connecting to the world and having a sense of belonging appeals to aspirers 47
Aspirers are increasingly seeking a purchase experience that is efficient and convenient 48
Providers should establish early relationships with aspirers to gain business when they accumulate wealth 48
THE FUTURE OF PENSIONS DISTRIBUTION 49
IFAs are well-established in the pensions market, but many are shifting their focus up-market 49
IFAs perceive that pensions will prove to be less difficult to sell than other products 50
IFAs will play a crucial role in the new pensions era 52
Regulatory changes to distribution represent a particular challenge to the sale of SIPPs 53
Online distribution remains a promising area in the individual pensions market 54
Wrap platforms may soon reach a proliferation peak 54
APPENDIX 55
Data 55
Definitions 56
Single premium policy 56
Regular premium 56
New business 56
Life-based savings products 57
In-specie contribution 57
Pension product definitions 57
Personal pensions 57
Stakeholder pensions 57
Group personal pensions (GPPs) 57
DSS rebates 57
Employer-sponsored stakeholder pension 57
Self-invested personal pensions (SIPPs) 58
ABI definitions of distribution channels 58
Independent financial advisors (IFAs) 58
Direct sales forces 58
Tied agents 58
Multi-tied agents 58
Bancassurance 58
Direct marketing 58
Other 58
Further reading 59
Ask the analyst 59
Datamonitor consulting 59
Disclaimer 59
List of Tables
Table 1: Forecasts single premium pensions new business, £m annual premium equivalent (APE), 2009-13 12
Table 2: Forecast regular premium pensions new business, £m APE, 2009-13 15
Table 3: Single premium pensions new business for the top 10 pensions companies 2008, £m APE 33
Table 4: Regular premium pensions new business for the top 10 pensions companies 2008, £m APE 36
Table 5: Total single and regular premium pensions new business by distribution channel, £m APE, 2004-08 50
Table 6: How do you see business in each of the following areas changing over the next six months? 51
Table 7: Forecast single and regular premium pensions new business by distribution channel, £m APE, 2009-13 53
Table 8: Single premium pensions new business premiums £m APE, 2004-08 55
Table 9: Regular premium pensions new business premiums, £m APE, 2004-08 55
Table 10: How do you rank the following companies in terms of their overall service? 56
List of Figures
Figure 1: Personal pensions and SIPPs still dominate single premium pension sales in 2008 7
Figure 2: The regular premium pensions market saw slender growth in 2008 8
Figure 3: SIPP products will rise in popularity over the next five years 11
Figure 4: Group personal pensions are forecasted to dominate the regular premium pensions market 14
Figure 5: Pressure on the working age population is increasing as more people begin to retire 18
Figure 6: Longer life expectancies are producing growth in the number of older people in the UK 19
Figure 7: Affordability is a strong barrier against saving for a pension 22
Figure 8: Prudential dominates the single premium pensions field, with the highest market share by percentage in 2008 32
Figure 9: The majority of advisors view Prudential as a financially stable life company 34
Figure 10: Standard Life heads the group of leading regular premium pension providers, with the highest market share by percentage in 2008 35
Figure 11: Standard Life effectively employs use of celebrity to promote its 'Active Money' SIPP 37
Figure 12: The accumulators are a significant part of the population in the UK 44
Figure 13: Lincoln Financial Group offers a gentle reminder to consumers of the future challenges they may face in their lifetime 46
Figure 14: IFAs dominate the distribution of pension products 49
Figure 15: Advisors believe pension business will see an increase over the next six months 51
Figure 16: IFAs will continue to be the predominant distribution channel in the pensions market 52