Pension Extenders: Market Assessment 2002

Published by: Key Note Publications Ltd

Published: Jul. 1, 2002 - 153 Pages

Table of Contents

Executive Summary

RETIREMENT FUNDS TOO SMALL

DISMAL CONDITIONS FOR PENSION SALES

NOT AS WELL OFF AS WE LIKE TO THINK

FALSE EXPECTATIONS A BARRIER TO SAVING

EQUITY RELEASE NEEDS STRONG PROPERTY MARKET

BASIC STEPS TO EXTEND PENSIONS

AUSTERE BUDGETS

CAUTION IS THE WATCHWORD

1. Introduction

THE TOPIC

OBJECTIVES

METHODOLOGY

Problems In The Research Process

DEFINITION

2. Strategic Overview

MARKET DYNAMICS

Typical Retirement Fund is £30,000

Double Blow for Women

Table 1: Pension Provision in Great Britain by Employment Status, Gender

and Age (%), 1999/2000

Figure 1: Pension Provision in Great Britain by Employment Status, Gender

and Age (%), 1999/2000

Executives Win Out Over Workers

ADVERTISING REVIEW

Slight Recovery in Pensions

Equity Release Grows

THE CONSUMER

Low Incomes a Barrier to Retirement Savings

Table 2: Projected Income Distribution in the UK by Income Range

(000 and %), 2001/2002

Table 3: Projected Income Distribution in the UK — Percentages of Taxpayers

at or Below Specified Income Levels, 2001/2002

Figure 2: Projected Income Distribution in the UK — Percentages of Taxpayers

at or Below Specified Income Levels, 2001/2002

Table 4: Estimated UK Adult Population by Individual Net Wealth (000), 1999

Consumer Research

2000 — Public Lacked Understanding About Pensions

2002 — Not Too Sure But Not Too Bothered

3. Marketing Trends

ADVERTISING EXPENDITURE

Pension Produ18

By Company

Table 5: Main Media Advertising Expenditure on Major Pension Products

(£000 and %), Year Ending March 2000

Table 6: Main Media Advertising Expenditure on Major Pension Products

(£000 and %), Year Ending December 2001

By Type of Product

Table 7: Main Media Advertising Expenditure on Pensions by Type of Product

(£000 and %), Years Ending March 2000 and December 2001

Figure 3: Main Media Advertising Expenditure on Pensions by Type of Product

(£000 and %), Years Ending March 2000 and December 2001

Equity-Release Products

Table 8: Main Media Advertising Expenditure on Major Equity-Release Products

(£000 and %), Year Ending December 2001

FINANCIAL COMPANIES DOMINATE DIRECT MAIL

Table 9: Direct Mail Spend as a Percentage of Total Expenditure on Advertising

in the UK (£m and %), 1989-2001

Figure 4: Direct Mail Spend as a Percentage of Total Expenditure on Advertising

in the UK (£m), 1989-2001

4. The State Pension — Will It Be Enough?

THE BASIC PENSION

Table 10: Pension Spending in the UK Compared With All Social Security

and All Central Government Expenditure by Value at Current Prices

(£m and %), 1997/1998-2003/2004

Table 11: Spending on State Retirement Pensions in Great Britain at Constant

1998/1999 Prices (£m), 1978/1979, 1988/1989 and 1998/1999-2002/2003

THE STATE EARNINGS-RELATED PENSION SCHEME

NEW STATE SECOND PENSION

5. Stakeholder and Other Personal Pensions

THE UNPENSIONED

TAXATION BLOW

Table 12: Selected Income-Tax Credits and Repayments (£m), 1994/1995-1999/2000

STAKEHOLDER PENSIONS

The First 9 Months

Predominance Among Men

Table 13: Possible Retirement Income Generated by Placing £81 a Month

in a Stakeholder Pension by Starting Age (£), 2002

Figure 5: Possible Retirement Income Generated by Placing £81 a Month

in a Stakeholder Pension by Starting Age (£), 2002

OTHER PERSONAL PENSIONS

6. Occupational Pensions

FINAL-SALARY SCHEMES

Table 14: Pension-Fund Surpluses (number, £m and %),

1993-4/1995-6 to 1997-8/1999-00

GROUP PERSONAL PENSIONS

7. Making the Most of Annuities

CAPTIVE CLIENTELE

Standard An40

Investment-Linked Annuities

ANNUITY RATES COLLAPSE

Table 15: Top Annuity Rates by Age and Sex (£ per year per £100,000),

August 2000 and April 2002

ADDING CHOICE: INVESTMENT ANNUITIES

OPEN ANNUNITIES

THE DRAWDOWN OPTION

ANNUITIES FOR LONG-TERM CARE

HIGHER INCOME FOR IMPAIRED LIFE

8. Income from Savings and Investments

AN ISA ANSWER

DEFLATION DANGERS

9. Income from Property

EQUITY RELEASE

NEW SCHEMES

MORE MARKET LEADERS

PROPERTY PRICE DEPENDENCE

On Continuing Low Interest Rates

On Tight Planning Controls

IS THE PARTY ENDING?

10. Income From Work

A RETURN TO LIFELONG WORK?

JOBS MAY BE CASUAL AND LOW PAID

11. An International Perspective

MORE PENSIONERS, FEWER WORKERS

Table 16: Percentage of Population Aged 65 and Over in Leading OECD Countries

(000 and %), 1999

Table 17: Ratio of Pensioners to the Working Population by Selected Country

(%), 1980, 1990, 2000 and 2030

Figure 6: Ratio of Pensioners to the Working Population by Selected Country

(%), 1980, 1990, 2000 and 2030

FLEXIBLE US

DOUBLE DIPPING IN AUSTRALIA

PRIVATE IN CHILE

ANNUITIES IN EUROPE

INTERNATIONAL INFLUENCES

12. PEST Analysis

POLITICAL FACTORS

Pensioners Have Growing Political Power

Individual Pension Accounts

ECONOMIC FACTORS

SOCIAL FACTORS

Surge in Over-80s

Table 18: Actual and Forecast UK Population by Age Group (% and 000),

1961, 1981, 2001 and 2021

Growing Number of Households

Table 19: Number of UK Households (million), 1961, 1981 and 2001

Table 20: Number of Households by Composition (000),1990-1992, 1996 and 2003

TECHNOLOGICAL FACTORS

Help for Independent Financial Advisers

Limited Role for E-Commerce

13. Consumer Dynamics

OVERVIEW

Change from 1997 to 2000

Table 21: Overall Levels of Agreement to Statements About Pensions

(% of respondents), 1997 and 2000

Table 22: Ranking of Agreement to Statements About Pensions, 1997 and 2000

2000 — High Earners Worried About Adequacy of State Pension

2001 — Lukewarm Interest in Stakeholder Pensions

2002 — Vague But Not Too Worried

Table 23: Overview of Results (% of respondents), 2002

ENTITLEMENT TO OCCUPATIONAL PENSIONS

Table 24: Entitlement to Occupational Pensions (% of respondents), 2002

ENTITLEMENT TO PERSONAL PENSIONS

Table 25: Entitlement to a Personal Pension (% of respondents), 2002

IMPORTANCE OF THE STATE PENSION

The Basic State Pension is the Only Pension I Receive or Will Receive When I Retire

I Receive, or Will Receive, a State Earnings-Related Pension Upon My Retirement

Table 26: The Importance of the State Pension (% of respondents), 2002

LEVEL OF RELIANCE OF STATE PENSION

The Basic State Pension Accounts For, or Will Account for, Less Than a Quarter

of My Income

Table 27: Reliance on the State Pension (% of respondents), 2002

The Basic State Pension Accounts For, or Will Account For, More Than Half of My Income

WHO WILL BE HARD UP?

Table 28: Concern Over Being Hard-Up in the Future (% of respondents), 2002

TOWARDS MORE FLEXIBLE RETIREMENT AGES?

Table 29: Towards More Flexible Retirement Ages? (% of respondents), 2002

HOUSING EQUITY — THE UNTAPPED RESOURCE

I Have Already Raised Money on the Value of My Home to Supplement My Income

in Retirement

I Have Not Yet Raised Money on the Value of My Home to Supplement My Income,

But I May Do So in the Future

Table 30: Attitudes Towards Equity Release (% of respondents), 2002

14. Company Profiles

UNHAPPY CLASH OF CAUTION AND MISTRUST

BRITANNIC GROUP PLC

Corporate S94

Advertising and Distribution

Profitability

Table 31: Financial Results and Ratios for Britannic Group PLC (£m, % and £),

Years Ending 31st December 1999-2001

Future Developments

CANADA LIFE LTD

Corporate S96

Advertising and Distribution

Profitability

Table 32: Financial Results and Ratios for Canada Life Ltd (£m, % and £),

Years Ending 31st December 1998-2000

Future Developments

CGNU PLC (AVIVA PLC)

Corporate Strategy

Advertising and Distribution

Profitability

Table 33: Financial Results and Ratios for CGNU PLC (£m, % and £),

Years Ending 31st December 1999-2001

Future Developments

CORNHILL INSURANCE PLC

Corporate Strategy

Advertising and Distribution

Profitability

Table 34: Financial Results and Ratios for Cornhill Insurance PLC (£m, % and £),

Years Ending 31st December 1998-2000

Future Developments

THE EQUITABLE LIFE ASSURANCE SOCIETY

Corporate Strategy

Advertising and Distribution

Profitability ...102

Table 35: Financial Results and Ratios for The Equitable Life Assurance Society

(£m, % and £), Years Ending 31st December 1998-2000

Future Developments

GE LIFE LTD

Corporate Strategy

Advertising and Distribution

Profitability

Table 36: Financial Results and Ratios for GE Life Ltd (£m, % and £),

Years Ending 31st December 1999-2001

Future Developments

NORTHERN ROCK PLC

Corporate Strategy

Advertising and Distribution

Profitability

Table 37: Financial Results and Ratios for Northern Rock PLC (£m, % and £),

Years Ending 31st December 1998-2000

Future Developments

NPI LTD

Corporate Strategy

Advertising and Distribution

Profitability ...108

Table 38: Financial Results and Ratios for NPI Ltd (£m, % and £),

Years Ending 31st December 1999-2001

Future Developments

PRUDENTIAL PLC

Corporate Strategy

Advertising and Distribution

Profitability

Table 39: Financial Results and Ratios for Prudential PLC (£m, % and £),

Years Ending 31st December 1998-2000

Future Developments

SCOTTISH WIDOWS PLC

Corporate Strategy

Advertising and Distribution

Profitability

Table 40: Financial Results and Ratios for Scottish Widows PLC (£m, % and £),

Years Ending 31st December 2000 and 2001

Future Developments

STANDARD LIFE

Corporate Strategy

Advertising and Distribution

Profitability

Future Developments

VIRGIN MONEY PERSONAL FINANCE

Corporate Strategy

Advertising and Distribution

Profitability

Table 41: Financial Results and Ratios for Virgin Direct Personal Finance Ltd

(£m, % and £), Years Ending

30th September 1998 and 1999 and 31st December 2000

Future Developments

15. The Future

AUSTERE BUDGETS TO COME

Table 42: Saving Levels in Great Britain by Type of Household (%), 1998 and 2000

Figure 7: Saving Levels in Great Britain by Type of Household (%), 1998 and 2000

GROWTH IN OVER 60S

Table 43: UK Projected Population by Age Group (000), Mid-Year 2002-2010

FEWER WOMEN TO FACE PENSION POVERTY?

ANNUITIES TO BECOME MORE FLEXIBLE

GOODBYE TO CONSPICUOUS CONSUMPTION?

HOW USEFUL IS FINANCIAL ADVICE?

The Issue of the ’Valueless’ Stock Options

The Mystery of the Deflating Pension Funds

PENSION EXTENDERS TO FILL SAVINGS GAP

ACTION OR INACTION?

16. Glossary

Abstract

In fact, from 2003, the combination of state pension, minimum income guarantee, and pension credits for savings will mean that single pensioners will have at least £100 a week, and couples at least £154. In most cases, this is enough to cover basic living expenses. The knowledge that there is a safety net may lead adults with small and moderate incomes — there are nearly 13.4 million taxpayers with annual incomes under £15,000 — not to bother about extra pension saving at all, and to use pension extenders to augment state provision.

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