Grey Market

The grey market is an important consumer group for financial services providers, since older consumers tend to be more concerned about retirement planning and investment for old age than those in their twenties and thirties. They are generally more amenable to the proposition of making further retirement provision, and many are in a better position financially to do so. On average, between the ages of 45 and 55 earnings peak, mortgage terms come to an end and the financial responsibility of parenthood typically starts to lessen. Hence, consumers who fit into this general category tend to find that their essential out goings reduce while their disposable income increases, enabling them to increase the amount they can save or invest for the future.

Nevertheless, while some consumers aged 45 and over will have adequate provision for their retirement, via a pension plan and/or other savings and investments, there will be many who have some provision but need to do more, and even others who have no retirement provision at all. Among this last category there is a significant proportion of people who will have little opportunity to change their retirement prospects.

Mintel has, therefore, conducted exclusive consumer research in order to identify these different target groups within the grey market. To achieve this overall objective, the consumer research explores current retirement provision and expectations among the non-retired 45+ population, as well as attitudes towards saving and investing for their future retirement. In addition, the report draws on a range of sources and statistics to examine the work patterns, lifestyles, sources of income and size of the grey market.

It should be noted that the report focuses on consumers aged 45 or over in relation to retirement provision in general rather than to any one specific product. Hence, in addition to traditional products for retirement such as pensions and annuities, alternative means of providing an income for retirement are considered, such as ISAs, investment bonds, unit trusts and home equity release schemes. Other related areas, such as inheritance tax planning and long-term care insurance are also included. However, for more detailed information on specific product or service areas readers are invited to see Mintel's complete index of reports.

Introduction and Abbreviations


Global information and research

Definitions

Consumer research

Abbreviations

Executive Summary


The Government acts to reduce the burden of state pension funding

Further action is needed to reduce the savings gap

Insurers calling on the Government to increase the state retirement age

Changing lifestyles and work patterns are driving product innovation

Those aged 45+ tend to be able to increase pension contributions

Recently retired pensioners show a greater reliance on self-provision

Figure 1: Proportion of weekly gross income by type of income, all pensioners, 2000/01

Low annuity rates are prompting consumers to look at alternatives

The grey consumer

Self-provision will become increasingly important going forward

Background


Defining the grey market

Ages 45-54

Ages 55-64, the retiring years

Ages 65+, post-retirement

The UK pension system

Figure 2: Structure of the UK pension system, 2002

Reforming the pension system

The new Pension Credit aims to make saving more attractive to low and moderate earners

Stakeholder pensions appeal to a wider range of people...

...but further reforms are needed to encourage people to save more

Figure 3: Savings needed for a pension of £10,000 a year in real terms, May 2002

Figure 4: Projected weekly retirement income at the age of 65 should a person invest £81 per

month in a stakeholder pension, by gender and starting age, April 2002

Raising the state pension age could ease the burden on pension funding

Annuities rules have been criticised for being too inflexible

The inheritance tax threshold is not keeping pace with rising house prices

Market Factors


Changing work and social patterns call for more flexible pension arrangements

Figure 5: Projections of households, by type in England, 1981-2016

Longer life expectancy means pension funds have to stretch further

Figure 6: Expectation of life at age 50 in the UK, by gender, 1971-2040

Age structure of the working population

Figure 7: Composition of the employed population, by age group and gender, Spring Quarter 2001

Employment rates increasing for the over 50s

Figure 8: Employment rates for adults aged 50+, by gender and age group, Spring Quarter,
1993-2001

Twice as many women as men over state retirement age are in employment

Economic activity rates for the over-50s more volatile

Figure 9: Economic activity rates for adults aged 50+, by gender, Spring Quarter, 1993-2001

Average earnings peak around the age of 45

Figure 10: Average gross annual and weekly earnings and distribution of weekly pay for full-timemployees in Great Britain, April 2001

Income levels vary according to gender and type of work

Figure 11: Average gross annual and weekly earnings for full-time employees in Great Britain, bgender and type of work, April 2001

Household income tends to decline from the age of 55

Figure 12: Annual household income, by age group, 2001

Inheritance often boosts the over-45s level of wealth...

...while rising house prices have also increased grey market affluence

Figure 13: Age of head of household by tenure, England, 2000/01

Market Size


The size of the grey market

Figure 14: Population aged 45 and over in the UK, by age group, 1991-2006

Adults aged 45+ as a proportion of all adults

Figure 15: Adults aged 45+ as a proportion of all adults, 1991-2006

There are more women than men over the age of 44

Figure 16: Population of men and women aged 45 and over in the UK, 1991-2006

Retirement Planning, Provision and Products


Some 98% of pensioners are in receipt of state retirement income

Figure 17: Proportion of pensioner units in receipt of selected sources income, 2000/01

Pensioners are increasingly relying on self-provision for their income

Figure 18: The average incomes of all pensioners and pensioners recently retired, constant
2000/01 prices, by source, 1994/95-2000/01

Almost one in four pensioner households have savings valued at £20,000 or more

Figure 19: Proportion of pensioner households with savings, Great Britain, by amount, 2000/01

Ownership of selected saving and investment products among the 45+ age population

Figure 20: Proportion of households with selected savings/investments, by type and age of hea2000/01

The grey market is the principal segment for providers of savings and investment products

Figure 21: Total new business, by value and volume, and the proportion of contracts held by the

45+ population, by product type, 2001

Expenditure on personal pensions is highest among the 50-74 age group

Figure 22: Annual expenditure on, and penetration of, personal pensions, by age group, 1999/2000

An increasing number of people are investing in bricks and mortar to boost their retirementincome

Home equity release plans can provide a further source of income for pensioners

Trust funds can reduce inheritance tax liabilities

Long-term care insurance remains a niche market

Figure 23: Lifetime risk of admission to permanent residential/nursing home care, by age and
gender, 1997

The over-45s are most likely to seek investment advice from banks, building societies
and IFAs

Figure 24: Preferred sources for investment information and advice, by age group, April 2002

The Consumer


Some 13% of 45-54-year-olds think retirement is too far away for it to be of concern to the
now

Figure 25: Percentage of respondents who agree verses those that do not agree that retiremenis a long way away for them to worry about it now, by age group, April 2002

ABs most likely to be concerned about their retirement

Figure 26: Percentage of respondents who agree verses those that do not agree that retiremenis a long way away for them to worry about it now, by socio-economic group, April 2002

One in four people aged 45+ have no private provision

Figure 27: Ownership of pension or retirement-related products, by age group, April 2002

Single people, C2DEs and those currently not working are least likely to have a pension or

other retirement provision

Figure 28: Ownership of pension or retirement-related products among the 45+ age group, by

socio-economic and demographic group, April 2002

Four out of five greys think that state benefits will not be enough to provide for a comfortabstandard of living at retirement

Figure 29: Proportion of over-45s who agree/disagree that state benefits alone will be enough tprovide for a comfortable retirement, by age, gender, socio-economic group and current retirement provision, April 2002

Two in three greys say they need an annual retirement income of £15,000 or more for a comfortable standard of living

Figure 30: Desired pension per annum for a comfortable retirement at current prices, by age group, April 2002

ABC1s, couples and high-earners tend to want a higher retirement income than C2DEs,

single people and low-to-medium earners

Figure 31: Desired pension per annum for a comfortable retirement at current prices, by socio-economic and demographic group, April 2002

Just over a quarter of the 45+ age group are able to save £100 or more a month for their retirement

Figure 32: Average amount saved/could save in a pension and/or other savings product per month among the 45+ age group, April 2002

Men, ABC1s, couples and higher earners are most able to save at least £100 a month for their retirement

Figure 33: Average amount could/do save in a pension and/or other savings product per month

among the 45+ age group, by socio-economic or demographic group, April 2002

Around half of the over-45s think they have sufficient financial provision for a comfortable retirement

Figure 34: Proportion of respondents aged 45+ who think they have verses those who think the

have not sufficient financial provision for a comfortable retirement, by gender, April 2002

The more people save each month the more confident they are of having sufficient retirement provision

Figure 35: Proportion of respondents aged 45+ who have sufficient financial provision for a

comfortable retirement verses those who have not, by amount able to save per month, April 200

Some 45% of grey consumers regret not saving more for their retirement

Figure 36: Proportion of 45+ age group who regret not saving more money in the past for their retirement verses those who do not, by age, gender, socio-economic group and current retirement provision, April 2002

Nearly two thirds of people aged 45+ would make additional savings to boost their retirement income

Figure 37: Proportion of respondents aged 45+ who would verses those who would not considemaking additional payments/savings to boost their income at retirement, by gender and socio-economic group, April 2002

Financial security is the primary factor driving people to save

Figure 38: Main factors which would encourage people aged 45+ to save or invest more moneyfor their retirement, ranked in order of importance, April 2002

Identifying specific target groups

Figure 39: Level of retirement provision, by age, gender, socio-economic and demographic group,
Apr-02

The Future


The number of people able to retire early is set to decline

Urgent need for many greys to save more for their retirement

The growing popularity of money-purchase occupational pensions could mean lower

contribution rates

Increasing use of alternative investments to boost pensions

The 45+ age group will continue to be the key market for savings and investments

A greater focus on advisory services by providers could increase sales

Long-term care insurance offers scope for expansion

Forecast


Growing number of grey market consumers...

Figure 40: Population forecast of grey market consumers, by age and gender, 2002-06

...equal to increased sales opportunities

Figure 41: Pensioners' gross income, by source, 1994/5-2006

Alternative pension sources growing faster than benefits