Product Type: Market Research Report
Published by: Mintel International Group Ltd.
Published: August 2004
Product Code: R560-1273Description As present regulations stand, consumers with a personal or money purchase occupational scheme are compelled to buy an annuity before the age of 75. This report examines the status of the annuities market now and considers how it will metamorphose in the future. Perhaps the biggest current issue for providers, IFAs and consumers is the postponement of A-day until 6 April 2006. In terms of providers and IFAs, the postponement gives both parties more time to understand the draft rules. Crucially for the market, postponement will also allow providers more time to develop new and appealing annuity products in line with the regime change. The new rules are expected to open up the pensions sector and new players will emerge on to the market.
Some consumers have postponed converting their pensions to take full advantage of the new rules. These consumers are expected to delay converting their funds for a further year. However, providers have seen policy sales increase significantly over the last few years as more personal pension funds have been converted. More than 350,000 new annuity policies were sold in 2003. Policy sales could spike after A-day as consumers rush to convert their pension funds under the new rules. Analysing the relevant information, this report considers how the annuities market will be influenced by the new rules.
Consumer use of the open market option (OMO) has been fairly limited since its introduction. However, over the next year, increased utilisation of OMO will put pressure on providers. This is largely because leading providers are preparing to offer the best rates across a wide consumer base to bring in new business and stay competitive in the market. Some larger annuity providers who can offer the best rates for conversions are expected to more widely advertise the consumer right to utilise OMO. In this report, Mintel's consumer research examines pension holder and annuitant behaviour in detail. Amid open debate about pensions and retirement planning in the media and through the government, Mintel trade interviews indicate what top providers believe will happen to the annuities sector going forward.
Table of Contents Introduction and Abbreviations
Report contents
Methodology
Global information and research
Consumer research
ACORN
Abbreviations
Premier Insight
Executive Summary
Life-expectancy is on the increase
Figure 1: Life-expectancy, by selected ages, 1981-2001
Gilt rates are lowest for many years
Figure 2: Consolidated stock average annual gilt yield, 1900-2003
The number of occupational pension scheme members has grown rapidly over the last decade
Figure 3: Number of consumers with pension provision, 1993-2003
DSF and tied agent sales fall to 7.6% in 2003
Figure 4: Distribution of pension annuity sales, by value, 1998-2003
BRS withdraws from the market
New rules will allow dealing in all types of investments
Figure 5: Alternative retirement strategies, June 2004
Definitions
Definitions of the main annuity products
Market Factors
The savings ratio is projected to increase
Figure 6: PDI, expenditure and savings, at current prices, 1999-2009
Property seems a better investment
Base rates begin to climb
Figure 7: Bank of England base rate, January 1994-June 2004
The stock market
Figure 8: FTSE 100 index, January 1996-January 2004
The gilts market
Figure 9: Consolidated stock average annual gilt yield, 1900-2003
Annuity rates will be kept low for the foreseeable future
Figure 10: Expectation of life at 65 years of age, by gender (UK), 1901-2021
Research group concludes "life-expectancy for some in retirement will increase significantly"
Mortality and the health of the nation
Figure 11: Expectation of life at birth, by selected ages, 1981-2001
Open Market Option
A-day 6 April 2006
Implications of A-day
The impact of new triviality rules
Company Law: Flexibility and Accessibility
Market Size
Nearly 19 million people hold an occupational pension
Figure 12: Pension provision of UK adult population, 1993-2003
Average premium per policy exceeds £10k in 2003
Figure 13: New individual pension business, by volume and value, 1998-2003
Number of new retirees to rise
Figure 14: Number of new retirees, 2001-10
Over 355,000 new policies sold in 2003
Figure 15: New pension annuities and income drawdown business, 1999-2003
Sales of single premium policies decline
Figure 16: Single premium individual life annuities, 1994-2003
The value of pension annuity payments reached £3.2 billion in 2002
Figure 17: Value of annuity payments, 1993-2002
Is BTL a practical alternative to an annuity?
Figure 18: Buy-to-let lending, 1999-2003
BTL v annuities
Equity release grows in appeal
Figure 19: Total sales equity release products , 2002-03
New premiums for long-term care reached £73 million in 2002
Figure 20: Single premium point-of-need long-term care policies, 1995-2002
Key Players and Product Pricing
The leading annuity providers
Figure 21: Selected annuity providers, 2004
Standard rates are lowering to compensate enhanced and impaired lives
Figure 22: Level single life annuity rates, June 2004
A fifth of married annuitants have a joint annuity policy
Figure 23: Level joint life annuity rates, June 2004
Inflationary effects will become a bigger issue for providers and consumers
Figure 24: RPI single life annuity rates, June 2004
The level of annuity rates going forward
Distribution
IFAs could play a major role in advising annuitants about OMO
Figure 25: Distribution of individual pension premiums, 2003
IFAs accounted for more than 83% of total sales in 2003
Figure 26: Distribution of pension annuity sales, by value, 1998-2003
Removing those with low life expectancies would push the average life-expectancy up and the conventional annuity rate down
There were around 15,000 new drawdown contracts last year
Figure 27: Distribution of income drawdown sales, 1998-2003
Internet distribution presents risks
Consumer Financial Activity
Consumers are confident about financial activity going forward
Demand on the main financial services providers (MFSPs)
Borrowing, saving and debt repayment activity
Savings and investment activity has remained relatively steady
Figure 28: Savings, investment, borrowing and debt repayment - consumers' expected activity, September 2002-December 2003
ABs, 23-29s and those earning over £35,000 are likely to be the most financially active
Figure 29: Expected financial activity, by gender, age socio-economic group, household income and working status, March 2004 and average for the last eight quarters
Consumers looking to service debt
Figure 30: Leading financial activities planned in the next 6 months, December 2002-March 2004
HSBC and NatWest were strong in the latest quarter
Figure 31: Leading main financial services providers: market share, March 2003-March 2004
Bank of Scotland can expect active customers in investments sector
Figure 32: Saving, investment and lending, market sizes by expected customer demand and brand leaders, March 2004
RBS and BoS customers will be the most active
Figure 33: Activity levels of main financial providers' customer bases, March 2004
The Consumer
Nearly a fifth of consumers contribute to an employer pension
Figure 34: UK pension contributions, June 2004
Are pensions too expensive for young adults?
Figure 35: UK pension contributions, by gender and age, June 2004
ABs most likely to contribute to a pension scheme
Figure 36: UK pension contributions, by socio-economic group and marital status, June 2004
Low income households least likely to hold a pension
Figure 37: UK pension contributions, by gross annual household income, June 2004
Pension holders expect annuity providers to be online
Figure 38: UK pension contributions, by new technology users and newspaper readership, June 2004
Providers consider retailers to offer in-store advice
Figure 39: UK pension contributions, by supermarket usage, June 2004
Those aged 45-54 more likely to choose a traditional annuity
Figure 40: Pension fund conversion preference, by gender and age, June 2004
ABs are more likely to favour index-linked products
Figure 41: Pension fund conversion preference, by socio-economic group and marital status, June 2004
Providers who offer the clearest explanation of annuities will win business
Figure 42: Pension fund conversion preference, by lifestage and new technology users, June 2004
Heavy TV viewers are likely to favour guaranteed annual payments
Figure 43: Pension fund conversion preference, by newspaper readership and commercial TV viewing, June 2004
Morrisons shoppers likely to favour a lump sum and guaranteed annual payment
Figure 44: Pension fund conversion preference, by supermarket usage, June 2004
Consumer Attitudes and Targeting Opportunities
Retired people have not been encouraged to be self-sufficient
Figure 45: Current income stream, by gender and age, June 2004
ABs have the funds to invest in speculative products
Figure 46: Current income stream, by socio-economic group and marital status, June 2004
Consumers still buying a home favour a steady income
Figure 47: Income stream, by gross annual household income and tenure, June 2004
Providers could offer retirement management services
Figure 48: Current income stream, by new technology users, newspaper readership and commercial TV viewing, June 2004
Just 1% of respondents said that they receive drawdown income
Figure 49: Current income stream, by supermarket usage, June 2004
A quarter of the sample said that they were happy with their income
Figure 50: Alternative retirement strategies, by gender and age, June 2004
A relatively small percentage will utilise equity release
Figure 51: Alternative retirement strategies, by socio-economic group and lifestage, June 2004
Only 4% are worried about falling annuity rates
Figure 52: Alternative retirement strategies, by working status and gross annual household income, June 2004
Figure 53: Alternative retirement strategies, by pension contributions, June 2004
Personal pension holders fairly likely to own a cash ISA
Figure 54: Pension contributions, by selected investment product ownership, June 2004
Full-time workers most likely to hold a pension
Figure 55: Personal pension and annuity holders, by gender, socio-economic group, marital status, working status and gross annual household income, June 2004
Annuitants less likely to view their home as a retirement savings fund
Figure 56: Attitude of personal pension holders and annuitants, June 2004
Personal pension holders prefer traditional products
Figure 57: Personal pension holders and annuitants, by conversion preference, June 2004
Most seek investment advice from a bank or building society
Figure 58: Personal pension holders and annuitants, by influence on investment, June 2004
Personal pension holders more regretful
Figure 59: Personal pension holders and annuitants, by regret, June 2004
The level of understanding will be higher for future annuitants
Figure 60: Personal pension holders and annuitants, by level of financial knowledge, June 2004
Industry Views
Market size
OMO
Annuity rates
Internet distribution
General issues
The Future
Exploiting the open market option
Will A-day open up the market?
Compulsory annuities will be scrapped under a Conservative government
Interest rates
Consumers wake up to work in retirement
Forecast
Figure 61: Forecast of new pension annuities business, 2003-09
Figure 62: Forecast of the average premium per policy, 2003-09
Factors incorporated
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