UK Individual Pensions 2007

Published by: Datamonitor

Published: Aug. 22, 2007 - 48 Pages

Table of Contents

Overview

Catalyst

Summary

Executive Summary

Market Focus

Competitor Focus

Distribution Dynamics

Table of Contents

Table of figures

Table of tables

MArket Focus

Personal pensions dominate the market in terms of new business

Single premium individual pensions new business grew by 12% per year between 2002-2006

SIPP new business grew at a compound annual rate of 161% between 2002-2006

Despite the dominance of personal pensions, SIPPs have experienced the most impressive year-on-year growth over the last five years

There are three key products in the individual pensions market

SIPPs have received the most recent attention

Appropriate segmentation and targeting of SIPPs can boost take-up and retention

SIPP regulation and the proposed introduction of personal accounts are the current key market issues

Personal accounts are being heralded as the way forward for the low-end of the market

The potential of personal accounts are somewhat undermined by the costs of the scheme

Personal accounts may put pressure for amendments to be made to trivial commutation regulations

A contributions ceiling with regard to personal accounts may be necessary to ensure existing pension provision is not weakened

There are currently many alternatives to pension saving, the choice of which is dependent on investor attitude and preferences

SIPP regulation was finally introduced in April 2007

Amendments have been made to regulation and providers have been given more time with key features documents

SIPPs are giving providers access to private companies

Most investors opt for default funds out of all fund choices

Default funds are a convenient choice, but do not necessarily represent the most effective or appropriate fund allocation

Providing an extensive number of funds is not necessarily optimum and investors should be given a strong, narrow fund range to choose from

There has been little in the way of regulatory change throughout the individual pensions market

Many SIPP providers are blocking transfers of stocks & shares into pensions following increased scrutiny from HM Revenue & Customs

The HMRC has clarified rules regarding ""in-specie"" contributions

One possible solution to the complications of the HMRC lies with ""Bed-and-Sipping""

The Department of Work & Pensions plans to remove rules currently in place that serve to limit investment choice

The market will become increasingly shaped by SIPP products, leaving the future of stakeholder and personal pensions in doubt

Single premium SIPP new business is expected to grow at a compound annual rate of 14% over the next five years

SIPPs will account for just under half of regular premium individual pension new business by 2011

A definition for SIPPs, outlining its core principles and features, is necessary to ensure that insurance companies don't sell an incorrectly defined product

Hybrid SIPPs have the potential to become a popular product in the market

The emergence of Group SIPPs must be approached with caution

The SIPP market is expected to grow at an exponential rate and further encroach on personal pension business

The effectiveness of personal accounts is uncertain, as the market continues to polarize between stakeholder and SIPP pensions

But that does not necessarily signal an end for personal pensions and stakeholder offerings

A holistic retirement planning program will become integral to the future wellbeing of the UK pensions market

Combining variable annuities with a SIPP product will give investors an ideal balance for their retirement strategy

The future of SIPPs lie in their distribution via an efficient platform

Data

Competitor Focus

Lloyds TSB dominate the pensions market in terms of market share

Lloyds TSB currently head the group of leading single premium pensions providers in 2006, but Prudential came out on top in 2005

Aviva head the group of leading regular premium pensions providers in 2006 but Lloyds TSB came out on top in 2005

Most competitors are focusing their efforts on stakeholder and SIPP offerings

Life Companies tend to offer stakeholder and personal pension plans

The Legal & General offering is focused on stakeholder and annuity pensions

Scottish Widows offer stakeholder and personal pension plans, as well as a range of online tools

Online SIPPs are an area that has received significant attention from individual pensions providers

SIPPDeal are one of the few providers of online SIPPs in the market

Several non-life companies have begun offering SIPP products

Hargeaves Lansdown was considered the best SIPP provider by What Investment magazine in 2007

Fidelity incorporate SIPPs into a special Fidelity Retirement Fund

The Baillie Gifford Select Pension SIPP is provided in alliance with Alliance Trust Savings

There has been little in the way of product innovation within the individual pensions market

Most changes have centered on tweaks to the core features of the product, rather than development of market-altering strategies

The individual pensions market is characterized by few partnerships

AXA have recently acquired the Thinc financial advisory group

That aside, there has been little in the way of strategic partnerships within the individual pensions market

Data

Distribution Dynamics

IFAs are the most effective means of distributing individual pension products

But SIPP commissions and charges need to be clean and transparent, moving away from commission to a fee-based structure

Online distribution remains a promising area in the individual pensions market

The FSA is concerned about churning with regard to SIPP investments

The FSA's retail distribution review is the focal point of distribution regulation

The FSA's review of retail distribution has been the main point of discussion regarding distribution regulation

The FSA proposes to split the market for regulated investment advice into two parts

The FSA want remuneration to be provided on a fee basis but this is still an issue very much in transition

Sesame tops the list of the biggest distributors of pensions services in 2006

APPENDIX

Definitions

Single premium policy

Regular premium

New business

Life based savings products

In-specie contribution

Pension product definitions

Personal Pensions

Stakeholder Pensions

Group personal pensions

DSS Rebates

Employer Sponsored Stakeholder pension (ESS)

SIPPs (Self Invested Personal Pensions)

ABI definitions of distribution channels

Independent Financial Advisors (IFAs)

Direct sales forces

Tied agents

Multi-tied agents

Bancassurance

Direct marketing

Other

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Single premium pensions new business, £m APE, 2002-2006

Table 2: Regular premium pensions new business, £m APE, 2002-2006

Table 3: Forecast single premium pensions new business, £m APE, 2007-2011

Table 4: Forecast regular premium pensions new business, £m APE, 2007-2011

Table 5: Amount of new business attributed to SIPPs, segmented by SIPP type, £m, 2006

Table 6: Single premium pensions new business for the top ten life companies, £m APE, 2002-2006

Table 7: Regular premium pensions new business for the top ten life companies, £m APE, 2002-2006

Table 8: Top IFAs by total turnover and percentage of pension turnover, £m, 2006

Table 9: Top IFAs according to pensions turnover, £m, 2006

List of Figures

Figure 1: Personal pensions make up just over half of individual pensions new business in 2006

Figure 2: Personal pensions make up approximately half of regular premium individual pension new business in 2006

Figure 3: SIPP new business is forecast to overtake that of personal pensions by 2010

Figure 4: Personal pensions will dominate regular premium new business until 2011

Figure 5: Full SIPPs are the most popular SIPP product in terms of new business in 2006

Figure 6: The market for single premium pensions is currently dominated by Lloyds TSB in 2006

Figure 7: The market for regular premium pensions is dominated by Aviva in 2006

Figure 8: Sesame is the largest IFA in terms of annual pension turnover in 2006

Abstract

• The report covers the individual pensions market, focusing on Personal Pensions, Stakeholder and SIPPs.
• Extensive in-depth interviews were conducted with leading players in the market to ascertain the key concerns and prediction's for the coming years.
• Datamonitor's qualitative and quantitative forecasts for the individual pensions market, in light of significant industry changes.

• Offers unique insight from experts in all areas of the market regarding legislative and regulatory changes that are driving the market.
• Provides details of growth in the individual pensions market between 2002 and 2006 and offers analysis into developments such as personal accounts.
• Forecasts the individual pension market to 2011, covering a period of transition, with the emergence of personal accounts and SIPP development.

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