Annuities - UK: Industry Report

Annuities - UK

Product Type: Market Research Report
Published by: Mintel International Group Ltd.
Published: July 2009
Product Code: R560-3995

Description

The UK’s ageing population, and the current legislative stipulation that requires most of those with a defined contribution/money purchase pension to purchase an annuity by the age of 75, should ensure that the annuity market continues to experience strong growth over the long term. The introduction of personal accounts in 2012 should also provide a substantial boost to the number of people requiring an annuity in the future. However, recent economic turbulence has created some short-term challenges for the market, including a significant fall in the value of pension funds and an increase in the number of people opting to delay their retirement.

A widespread lack of consumer awareness and understanding of annuity products and retirement income issues continues to undermine the market in terms of the gap in pension savings and may also contribute to negative consumer perceptions of the industry. At the same time, increased longevity is placing downward pressure on annuity rates. However, in recent years the annuity market has witnessed considerable innovation as providers develop more flexible annuity products in response to growing demand from the baby boomer generation and through the introduction of more sophisticated underwriting and pricing strategies. Over the last year, the industry has also taken steps to improve consumer outcomes through the increased promotion of and improvements to the open market option.

This report examines the UK annuities market, including recent developments and innovations in the market and analysis of the key players. Market size and future trends are also considered, while Mintel’s exclusively commissioned trade research explores retirement plans and expectations as well as attitudes towards annuity products.

Key issues in the market

Demographic trends will ensure strong growth in demand for retirement income products.
However, consumer awareness and understanding of annuities remains low.
Increased longevity is leading to downward pressure on annuity rates, although providers are trying to mitigate this risk through more sophisticated pricing strategies.
The ‘baby-boomer’ generation are more likely to require a flexible approach to retirement income than is offered by many conventional annuity products.
There has been a lot of innovation in recent years, as providers try to make annuity products more attractive and engaging to consumers.
The recession has reduced the size of many pension pots and has led some people to defer their retirement. Recent economic policy has also resulted in greater uncertainty in annuity rates.
Increased focus on the promotion and operation of the open market option has seen the implementation of an improved transfer system by many annuity providers, which is leading to a better customer experience.
Accessing independent advice continues to be a challenge for those with small pension pots. This is leading to the development of new direct sales channels and intermediary referral services.

Table of Contents

Issues in the Market: Key issues in the market; Abbreviations
Market in Brief: Annuity sales continue on an upward trend; Conventional annuities are beginning to lose ground; Market drivers should ensure growth over the long term; Economic downturn leads to increased uncertainty in annuity market; Prudential remains the leading annuity provider; Small pension pots drive product and distribution developments; Direct annuity sales set to grow; Key consumer findings; Pension product ownership; Retirement plans and expectations; Attitudes towards annuities
Internal Market Environment: Key points; Individual pension policies increase…; … but membership of DC schemes is shrinking; A large proportion of consumers remain disengaged with pensions; Personal accounts will boost the market over the long-term; Uncertainty over annuity rates; OMO continues to create headlines; Industry take positive action to develop the OMO; Regulatory and legislative developments; RDR; Trivial commutation rules; FSA comparative tables
Broader Market Environment: Key points; Ageing population boosts annuity market; Increased life expectancy propels ageing population…; … and drives innovation in the annuities market; Pensioner income data reveal change in approach to retirement; Inflationary trends - good and bad news for annuitants; Share prices experiences a turbulent year; Gilt yields fluctuate due to economic policy
Competitive Context: Key points; Annuities protected by legislation…; … but a significant number have alternative retirement strategies; Equity release provides a different approach to retirement income…; …but is it losing its appeal?
Strengths and Weaknesses in the Market
Market Size and Forecast: Key points; Annuity sales continue to rise; Annuity payments increase as market expands; Pension annuity market forecast; Almost 40% of annuities sold are for less than £10,000; Larger pension funds increase since A-day; Factors used in this forecast
Market Segment Performance: Key points; Annuity market is shifting away from conventional annuities; Enhanced annuity sales continue to increase; Enhanced annuities - becoming a mainstream product?; Third-way sales reach £1 billion in 2008…; … but market turbulence hits variable annuity sector
Income Drawdown Overview: Key points; Sidestepping the annuity; Income drawdown sales decline in 2008; Average income drawdown fund size falls; IFAs likely to be scrutinised as income drawdown funds decline
Market Share: Key points; Prudential holds 21% of the UK annuity market; Some movement within top 15 rankings
Companies and Products: Major players; Prudential; Aviva; AEGON; Legal & General
Brand Communication and Promotion: Key points; Annuity adspend declines by 40% in 2008; Intermediary annuity adspend grows strongly; Enhanced annuity provider tops advertisers in 2008; Press advertising dominates
Channels to Market: Key points; Direct sales increase…; …although IFAs continue to dominate annuity sales; IFA community faces challenges
The Consumer - Pension Ownership: Key points; Pension savings gap is clear; Balance shifting in the pension market; Major gap in pension savings among the under 35s; Pension ownership closely aligned to affluence; Groups for consumer analysis; Annuity targets more likely to be third age, AB and male; Many annuity targets have additional sources of retirement income
The Consumer - Retirement Plans and Expectations: Key points; Most people expect to retire at state pension age; Retirement reality kicks in after people reach 55; Some 23% of annuity targets expect to retire before state pension age; Mixed expectations of standard of living during retirement; Retirement expectations alter with age; A quarter of annuity targets expect a comfortable retirement; Retirement plans and expectations are generally aligned
APPENDIX - PRODUCT BACKGROUND AND DEFINITIONS: Common product types; Single or joint life; Cash lump sum; Open market option; Alternatives; Pensions simplification and income drawdown; Alternatively secured pensions; Pension products
APPENDIX - INTERNAL MARKET ENVIRONMENT
RETAIL DISTRIBUTION REVIEW: Splitting sales and advice; From commission to fees; Possible extension to non-investment markets
APPENDIX - THE CONSUMER - PRODUCT OWNERSHIP
APPENDIX - THE CONSUMER - RETIREMENT PLANS AND EXPECTATIONS
APPENDIX: RESEARCH METHODOLOGY

Ordering and More Information

Price and Delivery Options

MindBranch has been the leading provider of industry and investment research from more than 550 independent research firms since 1992. With over 90,000 market research reports, MindBranch is your trusted source of competitive business intelligence.