Personal Accounts: The Future of Pension Provision

Published by: Datamonitor

Published: Oct. 5, 2009 - 35 Pages

Table of Contents

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

Abstract

• 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.

• 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.

About MarketResearch.com
MarketResearch.com is an online aggregator selling over 250,000 market research reports, company profiles and country profiles from over 650 research firms. Our reports will provide you with the critical business and competitive intelligence you need for strategic planning and marketing research. Coverage includes the US, UK, Europe, Asia and global markets.