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UK Pensions Market 2017

UK Pensions Market 2017

Summary

Pre- and post-retirement markets have seen some big changes over the last few years. The state pension has been changed from a two-tier to a flat-rate model to relieve pressure on the government, as the UK population is aging and individuals are living longer. Auto-enrolment will continue to be a big driver of growth in work- and trust-based pensions, as will buyouts as employers look to de-risk. By February 2018, all businesses will have to provide a pension to eligible employees, and by April 2019 the total minimum contribution will be 8%. New pension freedoms have given customers more flexibility in how they take money from their pensions.

Critical success factors

  • Technology and robo-advice: Technology must be used to help clients with smaller pension pots access advice. Services will either need to give a recommendation or help individuals decide for themselves. There are generally two areas where technology can help pensions: aiding individuals saving for retirement, or helping those approaching retirement understand their options in terms of accessing their money.
  • Encourage pensions savings: The market needs to continue to drive awareness of the need for individuals to save for retirement outside of the state pension. This is especially important to reduce opt-out rates as the minimum contribution increases.
Key pointers include in the report -
  • The pensions market has grown by 10.7% to be worth £10.8bn annual premium equivalent (APE) in 2016, and is forecast to reach £17.5bn APE by 2021.
  • Work-based and trust-based pensions hold the largest proportion of the pensions market (45.4% and 40.5% respectively); however, individual pensions have seen the highest growth (52.0%) since 2013.
  • 1.23 million UK businesses will be required to provide a workplace pension by 2018.
  • Income drawdown is now more popular than purchasing an annuity; however, those with pots valued under £30,000 are also opting to make full cash withdrawals.
The report UK Pensions Market 2017 explores the pre- and post-retirement markets. It discusses recent legislation such as changes to the state pension, auto-enrolment, the Retail Distribution Review, and the new pension freedoms. It explains the impacts of legislation with regards to market sizing, distribution, how people are saving their pensions, and how people are taking their pension pots at retirement. The size of the pensions market has been forecast to 2021. There is also a focus on how technology and robo-advice can encourage pension saving and understanding of pension options.

Companies mentioned in this report: Wealth Wizards, HSBC, NatWest, Santander, Pension Bee, Willis Towers Watson, Aviva.

Scope
  • This report explores the pre- and post-retirement markets.
  • It discusses recent legislation such as changes to the state pension, auto-enrolment, the Retail Distribution Review, and the new pension freedoms.
  • It explains the impacts of legislation with regards to market sizing, distribution, how people are saving their pensions, and how people are taking their pension pots at retirement.
  • The size of the pensions market has been forecast to 2021.
  • There is also a focus on how technology and robo-advice can encourage pension saving and understanding of pension options.
Reasons to buy
  • Understand the impacts of recent legislation on consumer behavior in the pre- and post-retirement markets.
  • Discover how technology and robo-advice can be used to encourage individuals to save pensions and give advice at retirement, ultimately increasing customer engagement.
  • See how the UK pensions market is forecast to grow over the next five years.


  • Executive Summary
    • The pensions market has undergone large reforms
    • Key findings
    • Critical success factors
  • The State Pension
    • Introduction
    • Pressure is increasing on the state pension
      • The UK's aging population is putting pressure on the state pension
        • Table Figure 1: Over-65s are forming an increasing proportion of the UK adult population
        • Table Figure 2: UK life expectancy is increasing
      • To relieve pressure, the state pension age is increasing
      • The state pension has moved to a flat rate model
      • The `triple lock' has been in force since 2011
      • The triple lock may be scrapped following the upcoming general election
  • Saving For Retirement
    • Pension saving is more important than ever
      • Individuals must make their own pension savings outside of the state pension
      • The UK pensions market grew by 10.7% during 2013-16
        • Table Figure 3: The UK pensions market was worth £10.82bn APE in 2016
      • Personal pensions and SIPPs have driven growth in the individual pensions market
        • Table Individual premiums APE, by product type (£000s), 2013-16
      • Workplace pensions have remained flat
        • Table Workplace premiums APE, by product type (£000s), 2013-16
      • Trust-based pensions have grown due to auto-enrolment
        • Table Trust-based premiums APE, by product type (£000s), 2013-16
    • Auto-enrolment has been introduced to increase pension savings
      • All employers will be required to provide a pension to eligible workers by February 2018
        • Table Figure 4: Auto-enrolment is staged by business size, starting with the largest employers
      • Minimum auto-enrolment contributions will reach 8% by 2019
        • Table Figure 5: Total minimum contributions will rise to 8% of band earnings in April 2019
      • Non-eligible individuals or those opting-out may not have sufficient savings at retirement
      • 1.23 million UK businesses will be required to provide a workplace pension by 2018
        • Table Number of UK businesses and employees (000s), by employee band size 2012-16
      • Auto-enrolment will put pressure on UK businesses
      • NEST is the government pension scheme for auto-enrolment
      • Restrictions on NEST pensions have been lifted, which could disrupt the pensions market
    • The pension market is predicted to be worth £17.5bn APE by 2021
      • The UK pensions market is forecast to grow significantly over the next five years
        • Table Figure 6: The UK pensions market will be worth £17.5bn APE by 2021
        • Table Forecast of premiums APE, by pension product (£000s), 2013-21f
  • Pension Freedoms
    • Pensions freedoms have made accessing a pension more flexible
      • Changes have been made to the way individuals can access their pot at retirement
        • Table Figure 7: Consumers approaching retirement have many options in terms of drawing income
    • Transfers from a defined benefit scheme have increased
      • Individuals can transfer from a defined benefit to a defined contribution scheme
      • Transferring to a defined contribution pension takes the responsibility off employers
      • Defined benefit pensions are in steady decline as employers look to derisk
        • Table Figure 8: Defined benefit pensions are declining, but auto-enrolment has increased the number of employees with
        • Table Figure 9: Defined benefit pensions are in decline, particularly among younger employees
      • The number of TVAS reports being carried out has risen since the reforms
      • The FCA is keeping a close eye on advisors when it comes to recommending transfers
    • Defined contribution pensions have become more flexible
      • The annuity market has declined since the new pension freedoms
        • Table Figure 10: The number of annuities sold has fallen drastically over recent years
        • Table The number of pension annuities sold by size of fund, and total new premiums (£000s), 2018-16
      • Income drawdown is now the preferred retirement income product over annuities
        • Table Figure 11: New business premiums from income drawdown have more than doubled since 2014
      • Income drawdown has moved from a capped to a flexi-access model
      • A pension pot can be taken as cash in a single or multiple withdrawals
        • Table Figure 12: Full cash withdrawals are currently the most common way to access a pension
        • Table Figure 13: Most of those who make full cash withdrawals have pension pots worth under £30,000
      • Pension pots can be left untouched to grow tax-free
      • There are new restrictions on pension contributions if withdrawals are made
    • Taxation of pension death benefits is now more generous
      • Taxation of a pension is dependent on the age at which the scheme member dies
      • Anyone can now be a nominated beneficiary of a pension
    • Pensions will remain a key savings product
      • Pensions force a long-term savings culture
      • The Lifetime ISA is not expected to be a popular alternative to a pension
      • Individuals should not ignore other assets they can benefit from in retirement
  • Distribution and Pension Advice
    • Pension freedoms have increased the need for advice on pensions
      • Around half of trust-based premiums are distributed with either no or restricted advice
        • Table Figure 14: The independent advice channel dominates individual and work-based pensions
        • Table New total premiums APE, by advice type (£000s), 2013-16
      • The wealthy seek advice, but there is an advice gap for those with smaller pension pots
      • Those opting for income drawdown are most likely to seek advice
        • Table Figure 15: 64.5% of individuals opting for income drawdown sought financial advice
      • The need for advice has increased as pension freedoms have given individuals more options
      • Technology could bridge the advice gap for individuals with smaller pension pots
      • Wealth Wizards has brought robo-advice to the pensions and retirement space
      • HSBC to offer robo-advice for small pension pots
      • Technology could also be a solution to help individuals engage with saving
      • The government is developing a Pensions Dashboard
        • Table Figure 16: The Pensions Dashboard prototype shows a comprehensive review of an individual's pensions savings
      • Pension Bee helps track and consolidate pensions to encourage more contributions
      • Willis Towers Watson's `Track my Pension' allows customers to track their investments
      • Aviva's `Shape My Future' tool helps users see the cost of their desired retirement lifestyle
        • Table Figure 17: Aviva's `Shape My Future' tool allows users to compare their desired retirement lifestyle with their savings
  • Appendix
    • Abbreviations and acronyms
    • Bibliography
    • Further reading

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