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The UK Pre-Retirement Pensions Market 2018

The UK Pre-Retirement Pensions Market 2018

Summary

The UK Pre-Retirement Pensions Market 2018, report discusses recent legislation such as changes to the state pension and auto-enrolment, as well as market sizing, distribution, and how people are saving their pensions. The size of the pensions market has been forecast to 2022. The report explores the attitudes and behavior of consumers when it comes to saving and preparing for retirement. There is also a focus on how technology and robo-advice can encourage pension saving and understanding of pension options.

The pensions market is growing as awareness of the need for individuals to save and provide for themselves outside of the state pension is increasing. The pensions market remained steady at £10.56bn annual premium equivalent (APE) in 2017, but is forecast to reach £12.7bn APE by 2022. Individual pensions have grown as self-invested personal pensions (SIPPs) and personal pensions have risen in popularity due to transfers of defined benefit pensions. Meanwhile auto-enrolment will continue to be a big driver of growth for workplace pensions as minimum contributions increase.

Pension providers must seek to improve customer engagement with pension saving. Many individuals do not know how much their pension pots are worth, and the majority of those who do, say their pot is small (under £10,000). Financial advice on pensions also needs to be made more accessible and affordable for all. Technology is key to the development of affordable, easy-to-use, convenient tools that consumers can use to understand how much they have already saved, and how much more they need to be saving to achieve a desired income and quality of life in retirement.

Scope

  • 42.3% of those starting a pension due to auto-enrolment said rises in pension contributions were “good news as saving for retirement is really important.”
  • Nearly a quarter of individuals (24.1%) do not know how much their pension is worth. Of those who did, over half stated their main pension pot was worth less than £10,000.
  • Most desire a monthly retirement income of between £1,000 and £1,999.
Reasons to buy
  • Understand the impacts of recent legislation on consumer behavior in the pre-retirement market.
  • Discover how technology and robo-advice can be used to encourage individuals to save for retirement.
  • See how the UK pensions market is forecast to grow over the next five years.


1. EXECUTIVE SUMMARY
1.1. Pension providers must embrace technology to help consumers save
1.2. Key findings
1.3. Critical success factors
2. THE STATE PENSION
2.1. Introduction
2.1.1. The government is trying to reduce reliance on the state pension
2.1.2. The UK population is aging
2.1.3. An aging population is putting pressure on the state pension
2.1.4. The Government Actuary’s Department reports that the state pension could run out by 2032
2.1.5. Finding a solution for the state pension is a dilemma for intergenerational wealth
2.1.6. The state pension age is increasing to relieve pressure on the state pension
2.1.7. Individuals will be working for longer and later into life
2.1.8. Life expectancy is stagnating, which should be acknowledged in reviewing the SPA
2.1.9. Some retire at 55, but most wait until they are at least 65 and can access the state pension
3. SAVING FOR RETIREMENT
3.1. Pension saving is more important than ever
3.1.1. Individuals must make their own pension savings outside of the state pension
3.1.2. The UK pensions market remains steady at £10.56bn APE in 2017
3.1.3. The individual pensions market has grown due to SIPPs
3.1.4. Work-based pensions have grown their share of the market
3.1.5. Trust-based pension premium fell significantly in 2017
3.1.6. The total pension market is expected to grow to be worth £12.7bn APE by 2022
3.2. Auto-enrolment is the government solution to boost pension savings
3.2.1. Auto-enrolment was introduced to improve individual pension saving
3.2.2. All employers are now providing a workplace pension to eligible employees
3.2.3. 1.23 million UK businesses are now required to provide workplace pensions
3.2.4. It is estimated that 17.7 million individuals are now saving through auto-enrolment
3.2.5. Auto-enrolment has benefited younger workers the most
3.2.6. Minimum auto-enrolment contributions will reach 8% by 2019
3.2.7. Total minimum contributions of 8% will not be enough to fund retirement on its own
3.2.8. The industry has been fearful of opt-out rates
3.2.9. Despite industry fears, individuals are supportive of higher pension contributions
3.2.10. Proposals seek to lower auto-enrolment eligibility to 18 and remove the lower earnings limit
3.2.11. The next step is encouraging pension saving among the self-employed and the gig economy
3.2.12. The employment rights of gig workers is in the media spotlight, which could impact pensions
3.3. There has been a shift away from defined benefit schemes
3.3.1. Employers have moved away from providing defined benefit pensions
3.3.2. Companies have been de-risking their defined benefit schemes through buyouts
3.3.3. Individuals are transferring out of defined benefit pensions due to high transfer values
3.3.4. The FCA is cracking down on improving the quality of pension transfer advice
3.4. Pension pot characteristics and saving attitudes
3.4.1. Workplace pensions are the most common type of pension held
3.4.2. Most individuals only have one workplace pension
3.4.3. There is a shift towards defined contribution pensions
3.4.4. A quarter of individuals don’t know how much their pension is worth
3.4.5. Over half of individuals stated their main pension pot was worth less than £10,000
3.4.6. The average pension pot held by those aged 45-55 is worth around £70,000
3.4.7. Women have smaller pension pots than men
3.4.8. An income equivalent to two thirds of working age income should be saved for retirement
3.4.9. Most desire a monthly retirement income between £1,000 and £1,999
3.4.10. Half of UK individuals plan to retire at state pension age
3.4.11. Most individuals contribute between 2% and 5% of their income into their pension
3.4.12. Pensions remain the main way individuals plan to fund retirement
4. THE COMPETITOR LANDSCAPE
4.1. Aviva tops the competitor market for pensions
4.1.1. Aviva ranks as the leading provider for individual and workplace pensions
4.1.2. NEST, the government pension scheme for auto-enrolment, has nearly 6.5 million members
4.1.3. Tighter regulation of master trusts is predicted to cause scheme closures and consolidation
4.1.4. The Lifetime ISA could be scrapped
5. THE FUTURE OF ADVICE AND SAVING
5.1. The advice gap is wide for pensions
5.1.1. The independent advice channel dominates for pensions
5.1.2. The wealthy seek advice, but there is an advice gap for those with smaller pension pots
5.1.3. Over a third of savers have never reviewed their pension plan
5.2. Technology must be used to improve pension saving engagement
5.2.1. The industry must make pension saving a higher priority for individuals
5.2.2. The industry needs to develop tools to help people understand their pension saving progress
5.2.3. The Pensions Dashboard is under threat of being scrapped
5.2.4. Pension providers need to make checking pension value as easy as checking a bank account
5.2.5. Aviva customers can now ask Amazon Alexa what the value of their pension is
5.2.6. Open banking is a new opportunity pension providers must embrace
5.2.7. Starling has teamed up with PensionBee through open banking
5.2.8. Open banking will allow consumers to view their finances holistically
5.2.9. Pension providers could form partnerships with saving apps and services
5.2.10. NEST is to trial a pensions with an ‘emergency fund’
5.2.11. The next step is encouraging individuals to manage how they want their pension invested
6. APPENDIX
6.1. Abbreviations and acronyms
6.2. GlobalData’s 2018 UK Life & Pensions Survey
6.3. Bibliography
6.4. Further reading
List of Tables
Table 1: Individual premiums APE, by product type (£000s), 2013-17
Table 2: Trust-based premiums APE, by product type (£000s), 2014-17
Table 3: Number of UK businesses and employees (000s), by employee band size, 2017
Table 4: The gap in pension savings across genders by age, 2017
Table 5: Top 10 UK pension providers, by pension type, 2016
Table 6: Number of LISA accounts, by provider, March 2018
Table 7: New total premiums APE, by advice type (£000s), 2014-17
List of Figures
Figure 1: The UK population is aging, with over-65s estimated to make up 30.2% of the adult population by 2050
Figure 2: The state pension age is increasing
Figure 3: Most individuals are retired by 65, but a few still have to or choose to keep working into later life
Figure 4: The total pension market remained steady, falling by only 2.4% to £10.56bn APE in 2017
Figure 5: Auto-enrolment will drive growth of the total pensions market
Figure 6: Auto-enrolment staging by business size was completed in February 2018
Figure 7: Younger generations are the biggest winners from the introduction of auto-enrolment
Figure 8: Total minimum contributions will rise to 8% of band earnings in April 2019
Figure 9: 42.3% of those who started a pension due to auto-enrolment support increasing contribution rates
Figure 10: The number of pension transfers was still increasing in Q1 2018
Figure 11: 84.1% of UK individuals have a company pension
Figure 12: Individuals have numerous pension pots over their working life but then consolidate them around 55
Figure 13: Defined contribution pensions dominate workplace pensions among the young
Figure 14: Individuals lose track of how much their pension is worth over their working life
Figure 15: Worryingly, 41.7% of 60-65 year-olds not yet retired report having a small pension worth less than £10,000
Figure 16: Most individuals desire an income between £1,000 and £2,999 per month in retirement
Figure 17: Most individuals plan to retire at state pension age
Figure 18: Household income is a big determinant of when individuals plan to retire
Figure 19: Most contribute 2-5% of their income into their pension
Figure 20: Pensions are the main way to fund retirement
Figure 21: The independent advice channel dominates individual and work-based pensions
Figure 22: Only 30.4% of non-retired individuals below SPA are receiving advice about their pensions
Figure 23: There is a big divide in how engaged consumers are with their pensions
Figure 24: Aviva has partnered with Amazon Alexa to develop a pension skill
Figure 25: More pension providers should develop APIs for open banking

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