The Changing Face of the UK At-Retirement market

Published by: Datamonitor

Published: Feb. 25, 2009 - 129 Pages

Table of Contents

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

Abstract

• 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.

• 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

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