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The Changing Face of the UK At-Retirement market

Datamonitor
February 25, 2009
129 Pages - SKU: DFMN2150926

Abstract Table of Contents Search inside this report Related Reports

Countries covered: United Kingdom

Introduction

With the UK at-retirement market facing challenges from economic turmoil damaging value of pension pots and increasing longevity risk, the report analyzes the strength of the at-retirement market & concludes that the availability of flexible retirement products will reshape the market. The report assesses the opportunity providers have in bringing innovative products to the at-retirement market.

Scope

Provide insight into the changing behaviours and requirements of the recessionary retiree.
Comprehensive analysis of key features that consumers desire in their at-retirement product.
Identifies key competitors and examines their differing strategies in the UK at-retirement market.

Highlights

The need to focus innovation on a more flexible retirement income generating product has never been more urgent. Today's retirees have come unprepared for their retirement life leaving providers with the challenge of finding a solution.

Reasons to Purchase

Identifies the changing needs of today's retirees and the key drivers of new business
Gain insight into competitor developments in the flexible annuity space
Understand how advisor knowledge of at-retirement products is a prerequisite for success in the at-retirement market

Overview: Catalyst; Summary
EXECUTIVE SUMMARY: The UK at-retirement market is facing a number of challenges; Flexible retirement income products are important for overcoming the challenges of the recessionary retiree; The success of new products will depend on providers engaging with advisors; Provider strategies need to address consumer barriers to long-term savings; Table of Contents; Table of figures; Table of tables
SPECIAL FEATURE: THE CHANGING FACE OF RETIREMENT: In a turbulent market, retirees are failing to be adequately supported leaving providers to find a solution; Unprecedented low interest rates are devastating those approaching retirement; The housing market crash has made equity release an unfeasible option to boost retirement income; Demographic and lifestyle shifts necessitate providers to change the at-retirement product landscape; The ageing of the UK population is challenging the provision of at-retirement products; Increasing longevity is driving a need to make funds last longer; The 'baby-boomer' generation forms an important part of the UK population; People are going through a longer stage between full employment and full retirement; Retirees face challenges from changing family structures despite having a sense of freedom; Providers can win new business in an uncertain climate by offering flexible annuities; Combating market volatility and changing demographics require products to have flexibility and elements of guarantee; However, the ideal at-retirement product is unattainable; Offering flexible annuities will help retirees against negative effects of economic and demographic shifts; Product features of flexible annuities suit the profile of today's retirees; Income guarantees will provide the recessionary retiree's need for a level of security; Flexible annuities facilitates retirees' desire to regain control over their income; Combining flexible annuities with a SIPP will complement their retirement strategy; Flexible annuities may only be for a targeted market; However, nervous investors are likely to be seeking products that come with an element of certainty; Guaranteed products may not suit retirees who come with small pension pots; Providers can capitalize further by increasing IFAs' knowledge of flexible annuities; Provider strategies for product innovation needs to address consumers' barriers to save; Long-term planning has been eschewed, with people assuming that they will get retirement income from the buckling state system; Lack of affordability is causing most retirees to have an under-provision of pension savings; Providers and advisors should support people to exercise personal responsibility
THE UK AT-RETIREMENT SEGMENT IS A HIGHLY ATTRACTIVE MARKET: Providers can capitalize from people who are poised to enter the market; Ageing baby boomers should result in a continued strong future demand for at-retirement products; The introduction of Personal Accounts will increase the value of the UK annuity market; Government should reconsider compulsory annuitization while doubts exist as to whether Personal Accounts will hit the target; The effectiveness of Personal Accounts is uncertain, with people still relying on the bucking state system for retirement income; New product innovations are increasing consumer interest in at-retirement products; New entries from the US are driving focus on more flexible products; Innovative example: The Hartford's Platinum Plan with the Guaranteed Retirement Income Plan (GRIP) offers income for life without purchasing an annuity being a necessity; Innovative example: Lincoln Financial's i2Live offers an accumulator, drawdown and annuity under one umbrella; Innovative example: MetLife's SIPP Secure Retirement Option (SRO) allows investment flexibility; Market innovation has also focused on streamlining enhanced annuities through efficient application processes; Providers can take advantage of the small UK market for flexible annuities; Only three major competitors offer flexible alternative to annuities in the UK at-retirement market; Innovative example: Prudential's Flexible Lifetime Annuity allows retirees to actively manage their pension funds; Innovative example: AEGON's 5 for Life is an investment plan that offers guaranteed income for life; Innovative example: Canada Life offers a flexible annuity with its Annuity Growth Account (AGA) product; Prudential is the largest UK at-retirement competitor and most popular among IFAs; Niche players such as Just Retirement are becoming a force to be reckoned with; Traditional annuities still lead the market but innovations are increasing in presence; Pension annuities are the leading retirement product; Variable annuities have increasingly become part of a retirement plan; However, there is still a market for income drawdown; Increased interest in income drawdown has been pronounced since A-Day; Equity release schemes as alternative investment approaches are seeing an upturn despite recent turmoil; Recent economic turmoil has not affected consumer confidence in equity release; Providers need to ensure clients know the true costs associated with equity release; Demand of equity release is sparking product innovation in the market; Providers need to increase awareness of at-retirement products among IFAs; IFAs will play a crucial role in the new retirement era; IFAs dominate the distribution of pension annuities and income drawdown products; However, advisors vary in awareness of alternatives to fixed annuities; The Open Market Option aims to improve market efficiency but customers still lack awareness of the option; The Open Market Option has increased in popularity; Worryingly, 20% of clients still don't realize that they can switch provider; Providers are also selling products before IFAs can inform clients of the Open Market Option
APPENDIX: Data; Definitions; Association of British Insurers' definitions of products; Pension annuities; Income drawdown; Association of British Insurers' definitions of distribution channels; Independent financial advisors (IFAs); Other definitions; Annuity; Product definitions; Further reading; Ask the analyst
Datamonitor consulting: Disclaimer
List of Tables: Table 1: Changes and projections in population segments 1981-2031e ('000s); Table 2: Pension annuities and income drawdown sales 2003-07 by distribution channel, £m; Table 3: At-retirement market, new business premiums 2003-08e, £m; Table 4: The largest at-retirement players 2007
List of Figures: Figure 1: Longer life expectancies are producing a growth in the number of older people in the UK; Figure 2: Consumers are looking for security in retirement through guaranteed retirement incomes; Figure 3: Security is top of the priorities for advisors' clients; Figure 4: A pensioner's income demand changes as they pass through stages of retirement; Figure 5: A lack of advisor understanding is hampering growth in the variable annuities market; Figure 6: The UK at-retirement sets to benefit from baby boomers poised to enter the market; Figure 7: Prudential is the largest at-retirement player; Figure 8: The annuities market has grown every year since 2004; Figure 9: Most advisors do not currently sell variable annuities; Figure 10: The majority of IFAs' clients take the Open Market Option; Figure 11: Some consumers still do not know about the Open Market Option

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The Changing Face of the UK At-Retirement market

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