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The Future of The UK Occupational Pensions Market

Published by: Datamonitor

Published: Oct. 4, 2006 - 57 Pages


Table of Contents


CHAPTER 1 EXECUTIVE SUMMARY
Introduction
The UK occupational pensions market is moving away from its focus on defined benefit schemes
Defined contribution schemes made up the largest proportion of occupational pension inflows in 2005
The future for Executive Plan Pensions (EPP) looks uncertain
SASSs remain a small part of the Occupational Pension market
New business into all AVC products has fallen significantly over the last 5 years
The total occupational pensions market in the UK is forecast to decline
Occupational pension providers and pension fund managers are facing a period of major upheaval in their market
Companies moving from DB to DC schemes face new challenges
The pension protection fund should boost confidence in defined benefit schemes
Effective asset management is vital for pension funds
Conracting out of the S2P is growing in popularity
Outsourcing of pensions administration is growing in popularity

CHAPTER 2 INTRODUCTION
The UK occupational pensions market
Employers' preferences have shifted away from defined benefit and towards defined contribution schemes
Advantages of defined benefit schemes
Disadvantages of defined benefit schemes
Advantages of defined contribution schemes
Disadvantages of defined contribution schemes

CHAPTER 3 OCCUPATIONAL PENSIONS - MARKET CONTEXT
Introduction
Key findings
The UK occupational pensions market is comprised of six key products
In 2005 inflows into life company occupational pensions market were £982m APE
Defined benefit schemes are being replace by defined contribution occupational pension schemes
What are defined contribution and defined benefit Schemes?
Both employer and employee contributions to pension funds have risen substantially over the last 5 years
The vast majority of employer contributions are made to defined benefit schemes
Specialist occupational pension products for wealthy customers have been declining in popularity
The future for Executive Plan Pensions looks uncertain
What are Executive Plan Pensions (EPPs)?
EPPs appeal primarily to Senior Managers and Controlling Directors
EPPs compete with SSASs for pension funds from controlling directors
Insurers dominate the market for EPPs
EPPs gained some new business in the run-up to simplification but their long-term future is bleak
EPPs will see a fund drain post-simplification
Insurance companies have pulled out of administrating EPPs
SASSs remain a small part of the Occupational Pension market
The SASS market is dominated by regular premium products
Uncertainty currently surrounds SSASs due to loopholes in regulation
Additional Voluntary Contributions - is there still a place for them?
New business into all AVC products has fallen significantly over the last 5 years
Has A-day made FSAVCs and AVCs obsolete?

CHAPTER 4 WHAT IS THE FUTURE OF THE OCCUPATIONAL PENSIONS MARKET?
Key findings
The total Occupational Pensions market in the UK is forecast to decline
Defined contribution pensions will remain the main source of business inflows in the occupational market
Inflows into defined benefit schemes will continue to decline
EPPs will lose new business to SIPPs and Personal Pensions post-Simplification
Group AVCs will gain benefits post-simplification, while FSAVCs will merge into the personal pensions market
Occupational pension providers and pension fund managers are facing a period of major upheaval in their market
Companies moving from DB to DC schemes face new challenges
Maintaining the existing DB arrangement and maximising benefits for members
The pension protection fund should boost confidence in defined benefit schemes
Effective asset management is vital in the pension fund market
The ability to maximise returns over a long time frame
A strong team is needed to support the investment manager
Trustees often do not know enough to effectively choose investment teams
Default funds are becoming increasingly inappropriate
Are default funds useful for defined contribution schemes?
The concerns over default funds are applicable to the arguments over NPSS provision
Conracting out of the S2P is growing in popularity
Increased flexibility of transfer payments
Distribution opportunities exist through the use of larger IFA firms and employee benefit consultants
Outsourcing of pension administration is growing in popularity
Technology and third-party administration
Is there a future in offering flexible benefits?
How has A-day effected third-party administration?

CHAPTER 5 APPENDIX
Supplementary data
Definitions
Additional Voluntary Contributions (AVCs) and Free-Standing Additional Voluntary Contributions (FSAVCs)
Controlling directors
Defined benefit schemes
Defined contribution schemes
Executive Plan Pensions (EPPs)
High net worth (HNW)
Free Standing Additional Voluntary Contributions (FSAVCs).
Funded Unapproved Retirement Benefit Schemes (FURBs):
Mass affluent
Mass market
Personal Pension
Self Invested Personal pensions (SIPPs)
Small Self Administered Schemes (SSAS)
Section 32 Transfers
State Second Pension (S2P)
Unfunded Unapproved Retirement Benefit Schemes (UURBs)
Vest
Research methodology
Life and pensions forecasting
Regressional analysis is unsuitable for Life and Pensions forecasting
Datamonitor uses a qualitative forecasting methodology for Life and Pensions
Future readings
Life and pensions
Interactive Databases
Reports and Briefs
SPP writing team
How to contact experts in your industry


List of Tables
Table 1: New business premiums in insurance company occupational pension schemes £m APE
Table 2: Employer and employee contributions to pension funds 2001-2005, £bn
Table 3: New business premiums into insured EPP funds £m APE
Table 4: New business premiums in insured SSASs, £m APE
Table 5: New business premiums in Group AVCs and FSAVCs, £m APE
Table 6: Forecast new business premiums in the occupational pensions market £m APE, 2006-2010
Table 7: Forecast new business premiums in the UK group pensions market, £m APE


List of Figures
Figure 1: The choices available to companies in terms of pension provision for their employees
Figure 2: Inflows into defined contribution schemes made up 57% of the insured occupational pensions market in 2005
Figure 3: Employers' contributions to pension funds have grown substantially over the last 5 years
Figure 4: Employer contributions to occupational pensions, split by DB, DC and Hybrid schemes
Figure 5: Regular premiums dominate the EPP market
Figure 6: The SSAS market is dominated by regular premium products
Figure 7: Sales across all AVC products have fallen significantly between 2001 and 2005
Figure 8: The UK occupational pension market is forcast to decline between 2006 and 2010
Figure 9: Future questions facing the occupational pensions industry
Figure 10: "Quasi-delphi" forecasting technique

Abstract

Introduction

The UK occupational pension market is undergoing a period of immense change as schemes move from the traditional defined benefit style to defined contribution. In addition, the A-day changes have made some product obsolete. This report examines where the market is now and what the potential is for growth in occupational pensions.

Scope
  • In-depth primary & secondary research is utilized to provide a picture of the current shape & the key issues affecting the occupational pensions market
  • Data from the ABI, ONS and DWP is used to size the market and analyze the current structure.
Highlights

In 2005 £982m APE of new business flowed into life companies' occupational pension funds. This value has remained approximately constant between 2001 and 2005.

There will be a decline in new business premiums flowing into all areas of the occupational pension market mainly due to customers switching into more flexible pension products such as SIPPs post A-day, and the anticipated introduction of the NPSS.

Reasons to Purchase
  • Provides a detailed picture of the current shape of the occupational pensions landscape
  • Discover those products that are forecast to win and lose in the post A-day market
  • Discover the key issues that are impacting pension providers and fund managers in the occupational pension world



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