United Kingdom (UK) Pre-Retirement Pensions Market 2020

United Kingdom (UK) Pre-Retirement Pensions Market 2020

Summary

The total UK pensions market grew 16.1% to £16.4bn annual premium equivalent (APE) in 2019. Workplace pensions drove growth as minimum pension contributions increased to 8%. Direct benefit to direct contribution transfers continue as companies de-risk and individuals take advantage of pension freedoms. COVID-19 will bring uncertainty to saving for retirement. The UK economy has officially entered into recession and disposable incomes are set to fall as unemployment rises. This will force many individuals to temporarily stop making pension contributions as they cut non-essential spending. The UK pensions market is projected to contract at the start of the forecast period before returning to growth.

This report examines how the pensions market is changing as consumers are encouraged to save in personal pensions while state pension funding is under pressure. It discusses the impact of auto-enrollment on saving, as well as other regulatory changes. The report explores consumers’ attitudes towards planning for retirement, examines how engaged they are with their pensions, and identifies how they access financial advice on their investments. It also discusses how consumer awareness around pensions can improve with technological developments.

The report provides current and historical data on the size of the market by product type - covering individual pensions, workplace pensions, and trust-based pensions - and distribution channel. The size of the pensions market has been forecast to 2024.

Scope

  • A notable 16.7% of individuals do not know how much their pension is worth. Of those who do, over half stated that their main pension pot is worth less than £30,000.
  • Women have considerably smaller pension pots than men and their state pension is lower.
  • 30.1% do not register to use their pension provider’s website, while a further 12.5% have registered but never used it.
Reasons to Buy
  • Examine the size of the pensions market.
  • Learn about recent market developments and upcoming regulatory changes.
  • Discover how consumers are saving towards retirement.
  • Understand consumer engagement with their pensions.
  • Learn about the impact of COVID-19 on pensions.


  • Executive Summary
    • COVID-19 will cause uncertainty in the pensions space
    • Key findings
    • Critical success factors
  • The State Pension
    • The UK population is aging, squeezing the state pension
      • Over 65s account for a growing proportion of the UK population
        • Table Figure 1: The proportion of the UK population made up by over 65s is projected to grow
      • An aging population puts pressure on taxpayers and the state pension
        • Table Figure 2: The old-age dependency ratio is projected to increase as the population ages
      • COVID-19 could shorten life expectancies, cutting pension payments by several years
      • The SPA is set to increase further, relieving some pressure on the state pension
        • Table Figure 3: The SPA is increasing
      • Controversy remains regarding SPA changes for women
      • The state pension gender gap has narrowed
        • Table Figure 4: The gender pension gap has fallen drastically
    • The state pension is insufficient and funding is under pressure
      • The UK's state pension is not enough to live comfortably on
        • Table Figure 5: Pensioner poverty has increased in recent years, following a period of sustained decline
      • COVID-19 has brought the state pension's triple-lock mechanism into the limelight
      • Some individuals saw their pension reduced following the end of the ADI
    • Almost half of individuals retire upon reaching the SPA
      • More than a third of individuals plan to retire before the SPA
        • Table Figure 6: Most individuals plan to retire upon reaching the state retirement age
        • Table Figure 7: Household income is a key determinant of when individuals plan to retire
      • Most wait until they can access the state pension before they retire
        • Table Figure 8: Most individuals retire at around the SPA
    • Individuals believe the state pension will help fund their retirement
      • The state pension remains one of the main ways individuals plan to fund retirement
        • Table Figure 9: The majority of individuals regard the state pension as the key way to fund their retirement
  • The Private Pension Market Size and Competitive Landscape
    • Workplace pensions make up the largest share of the market
      • The UK private pensions market reached £16.4bn APE in 2019
        • Table Figure 10: The total pension market grew 16.1% to £16.4bn APE in 2019
      • Trust-based pension savings recovered as buyouts soared
        • Table Trust-based premiums APE by product type (£m), 2015–19
      • The individual pensions market continued to shrink as single premiums fell
        • Table Individual premiums APE by product type (£m), 2015–19
      • COVID-19 will push the pensions market into a downturn in 2020
        • Table Figure 11: The pensions market will contract in 2020 as a result of COVID-19, before returning to growth
    • Royal London and Rothesay Life lead the market for pensions
      • Royal London is the largest provider for individual and workplace pensions
        • Table Top 10 UK individual and workplace pension providers by GWP, 2018
      • Rothesay Life strengthened its position to become the largest provider of trust-based pensions
        • Table Top 10 UK trust-based pension providers by GWP, 2018
      • The number of master trusts has shrunk following the implementation of new requirements
      • Government-backed NEST continues to grow
      • Uptake of LISAs remains lackluster
  • Trends in Saving for Retirement
    • Auto-enrollment has boosted individual pension savings
      • All employers are required to offer a workplace pension
        • Table Figure 12: Auto-enrollment staging by business size was completed in February 2018
      • 18.7 million individuals now participate in a workplace pension, up almost 75% since autoenrollment was introduced
      • Most young workers start a workplace pension as a result of auto-enrollment
        • Table Figure 13: Younger generations are the biggest winners from the introduction of auto-enrollment
      • COVID-19 leads to delays in lowering the auto-enrollment age threshold to 18
      • Minimum auto-enrollment contributions increased to 8% in 2019
        • Table Figure 14: Total minimum contributions rose to 8% of qualifying earnings in April 2019
      • Most individuals would not opt out of their workplace pension should contribution rates rise
        • Table Figure 15: 29.6% of workplace pension holders would never opt out irrespective of the contribution rate
      • Furloughed workers have seen their pension contributions squeezed by COVID-19
      • The government is set to pay employer contributions for Kickstart Scheme employees
      • Removing the lower level of qualifying earnings will incentivize lower earners and multijobbers
      • New plans are underway to increase the pension freedoms age to 57
    • There has been a shift away from DB schemes
      • Companies have shifted towards DC pensions as they de-risk
      • DB to DC transfers have been common as individuals take advantage of pension freedoms
        • Table Figure 16: The value of pension transfers has fallen, having boomed in 2017
      • Hundreds of firms stopped providing advice on DB transfers following regulatory scrutiny
      • The FCA is introducing a ban on contingent charging that will apply to most DB transfers
      • CDCs will combine some of the benefits of DC and DB schemes
    • Pension pot characteristics and saving attitudes
      • Workplace pensions are the most common type of pension held by quite some margin
        • Table Figure 17: 78.5% of respondents have a group, company, or workplace pension
      • Most individuals say they have just one workplace pension yet lost pots are worth billions
        • Table Figure 18: Many individuals consolidate their pension pots at around retirement age
      • There has been a shift from DB to DC plans
        • Table Figure 19: DC pensions dominate workplace pensions among younger individuals
      • A significant proportion of individuals are unaware of how much their pension pot is worth
        • Table Figure 20: Individuals lose track of how much their pension is worth over their working life
      • A substantial proportion of over 50s have a sizable pension pot
        • Table Figure 21: A substantial proportion of individuals aged 50 and above believe the size of their main pension pot is worth in excess of £100,000
      • The private pension pots of women in their 60s are about a third the size of men's
        • Table Size of main pension pot split by gender (all ages), 2020
        • Table Figure 22: On average the private pension pot of a man is three times the size of a woman's
      • Single individuals need at least £10,200 per annum at retirement to cover all expenses
        • Table Figure 23: Single individuals need at least £10,200 per annum at retirement to cover expenses
      • On its own, the state pension is at least £2,062.26 per annum too low to enable retirees to pay all of their expenses
      • Over a third of individuals want a monthly retirement income of between £1,000 and £1,999
        • Table Figure 24: Most individuals desire an income between £1,000 and £2,999 per month in retirement
      • Individuals will need to top-up the state pension by more than £13,000 per annum to achieve their desired income at retirement
      • Over half of all workers pay more into their pension pot than they are legally required to
        • Table Figure 25: 55.4% of individuals contribute ¡Ý 6% of their income to their pension
      • Most employers make contributions at the minimum required level
        • Table Figure 26: It is most common for employers to contribute at the minimum legal requirement
    • The impact of COVID-19 on consumer attitudes towards pensions
      • COVID-19 has forced younger individuals to stop pension contributions
      • Almost a third of adults have lost confidence that their pensions/savings are enough to last their entire life as a result of COVID-19
        • Table Figure 27: Confidence on how long pensions will last has eroded as a result of COVID-19
      • The majority check the value of their pensions as often as before the pandemic
        • Table Figure 28: The majority of individuals have checked the value of their pensions as often as before the outbreak of the pandemic
      • Trust in pension providers remains largely unchanged by COVID-19
        • Table Figure 29: Trust in pension providers remains largely unchanged by COVID-19
  • Pensions Engagement and Advice
    • A substantial proportion of individuals do not receive financial advice on their pension plans
      • The majority of pension premiums are sold through the independent advice channel
        • Table Figure 30: The independent advice channel accounts for the largest share of distribution for all types of pensions
        • Table New total premiums APE by advice type (£m), 2015–19
      • Fewer than half of all individuals receive financial advice about their pension plans
        • Table Figure 31: Less than half of non-retired individuals seek advice about their pensions
      • Free advice services are a popular choice among those turning to financial advice
        • Table Figure 32: Individuals are most likely to use free advice services when they require advice on their pensions
    • Customers are rarely actively engaged with their retirement saving
      • A large proportion of savers have never registered to use their pension provider's website
        • Table Figure 33: Most individuals do not register to use their pension provider's website
      • Only a handful of individuals have engaged more with their pension provider since COVID-19
        • Table Figure 34: COVID-19 has not changed most individuals' frequency of communication with their pension provider
      • The largest proportion rely on the investment strategy preselected by their pension provider
        • Table Figure 35: Most rely on default settings preselected by their pension provider
    • Open finance and pensions dashboards can improve pension awareness and engagement
      • Extending the benefits of open banking will improve pension awareness
      • PensionBee's API is already facilitating the concept of open banking in pensions
      • Pensions dashboards are set to (re)connect individuals with their pensions
        • Table Figure 36: Pensions dashboards are set to reconnect individuals with all their pensions and improve awareness
    • Improving awareness of pension income closer to retirement is another area of focus
      • The Pensions Management Institute launched RetirementMatters to provide financial education on pensions to individuals exploring their retirement options
      • The Money Advice Service released a beta income drawdown tool
  • Appendix
    • Abbreviations and acronyms
    • Definitions
      • Annuity
      • APE
      • DB pension
      • DC pension
      • Income drawdown
    • Methodology
      • GlobalData's 2020 UK Life & Pensions Survey
    • Secondary sources
    • Further reading
    • About GlobalData
      • Table Figure 37: About GlobalData

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