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Personal Accounts: The Future of Pension Provision

Datamonitor
October 5, 2009
35 Pages - SKU: DFMN2470030

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Introduction

This report provides a comprehensive analysis of the impact the introduction of personal accounts will have on workplace pensions and on the private pensions industry. The report also focuses on how providers and the pensions industry as a whole can boost pension savings amid the government's discussion of personal accounts in the workplace.

Scope

Examines the current state of UK pension reforms and explores factors that are currently limiting individuals from saving for retirement.
Provides a comprehensive analysis of the impact of personal accounts on the UK pensions market.
Assesses strategies to combat key barriers to save for pension provision with particular focus on market conditions and demographics.

Highlights

A great deal of uncertainty surrounds the future of personal pensions and much of its progression will depend on the effects of the government's plans for personal accounts in potentially drawing investors away from these pension products.

Reasons to Purchase

Provides detailed analysis of developments in personal accounts as part of the UK pensions reforms.
Identifies the biggest impacts of personal accounts on employers prior to and after their introduction in 2012.
Highlights implications for the private pensions industry and the future of private pension products.

Overview: Catalyst; Summary; Executive Summary; Table of Contents; Table of figures
BACKGROUND TO PENSIONS REFORM IN THE UK: Individuals' saving obligations to obtain significant pension income face bigger burdens; Demographic trends are making pension savings a necessity; The basic state pension forms the foundation of pension provision; Government policy is aimed at supporting the poorest of pensioners; The UK's state pension is relatively meager in comparison to its European peers; Currently, individuals are less concerned by saving into a pension but more interested in clearing debt; Affordability coupled with short-term preferences act as further barriers to pension savings; People are not prepared to take on higher pension savings during a market downturn but instead turn to clearing debt; Consumers have a short-term outlook when making saving and investment decisions; The Government is reforming workplace pension provision from 2012 to make saving for retirement the norm; Automatic enrolment under the Pensions Act 2008 hopes to reform workplace pension provision; However, public-sector pension reform is a slow and controversial process and may not boost pension savings; Automatic enrolment is designed to overcome the inertia preventing many people from saving; Automatic enrolment is seen positively as a way of overcoming people's apathy towards pensions; Employees aged over 22 are eligible for automatic enrolment but policy should encourage people to start saving early; Policy must also place emphasis on financial education among young people to increase financial responsibility
PERSONAL ACCOUNTS: IMPLEMENTATION AND IMPLICATIONS: Personal accounts hope to engage people with making minimum contributions towards pension savings; Substantial cost implications for employers will detrimentally affect levels of contribution; For some, leveling down employers' contribution through the Personal Accounts scheme will make pension provision worse; Employers may be tempted to minimize costs of Personal Accounts through lower employee salaries; However, a contributions ceiling has been set to prevent the weakening of existing pensions provision; Personal accounts should still ensure that it pays to save against the impact of means-testing; The investment strategy must focus on achieving good retirement income for members; The default fund must reflect the characteristics of members in the personal accounts scheme; Retirement incomes of personal accounts members should be at the forefront of Trustees' minds when choosing an Investment objective; Personal accounts do not represent an end to private pension schemes; The effectiveness of Personal Accounts is uncertain; Providers can win new business in the market with low-cost SIPPs; Low-cost and vanilla SIPPs will meet the needs of the 'recessionary consumer'; New SIPP powers to hold protected rights will increase flexibility and investment choice for consumers; Providers can seize opportunities to educate consumers where the government has failed; Providers and advisors should support people to exercise personal responsibility; Providers and key industry players must help people to separate the concepts of building up a pension fund and receiving pension income; Individuals are increasingly on their own in planning for retirement and need to understand the risks that they will shoulder; For the private pensions industry, targeted marketing rather than new product development, must be the focus
APPENDIX: Definitions; Single premium policy; Regular premium; Wrap accounts; Product definitions; Life-based savings products; Life Assurance; Single premium life; With-profit bond; Unit-linked bond; Income and growth bonds; Guaranteed equity bonds; Distribution bonds; Purchased life annuities; Other bonds; ISAs; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Figures: Figure 1: Pressure on the working age population is increasing as more people begin to retire; Figure 2: The basic state pension forms the foundation of pension provision; Figure 3: Affordability is the main challenge for individuals preventing them from saving into a pension; Figure 4: The UK Pensions Reform is a slow moving process; Figure 5: Ten million people are assumed to participate in the personal accounts scheme in 2012; Figure 6: The future pensions market is one of helping individuals exercise personal responsibility; Figure 7: Individuals will face 5 key risks that employers have previously shouldered with their final salary schemes

Personal Accounts: The Future of Pension Provision

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