UK Individual Pensions 2008

With the individual pensions market undergoing significant change in recent years, the report analyzes the strength of individual pension products and concludes that the rise of SIPPs will continue at the expense of stakeholder and personal pensions. The report assesses the strategies available for providers to win new business in light of the Government's discussions on personal accounts.

Report Highlights
The individual pensions market has seen changes to its personal pensions area by the rise of SIPP products. The growing desire among investors to have some level of control over the way their underlying pensions' assets are handled and through which channels they are invested has increased the popularity of SIPPs among the UK customer base.

The potential for personal accounts to induce people to consider long-term savings plans is in question and the market has continued to polarize between stakeholder and SIPPs pensions. Providers can seize the opportunity to offer low-cost SIPPs to win new business in the middle market.
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Table of figures 4
Table of tables 5
SPECIAL FEATURE: GETTING TO GRIPS WITH PENSION SAVINGS 6
The UK government is failing to boost pension savings leaving providers to fill in the gap 6
Providers can seize opportunities where the government has failed 6
The government hopes that personal accounts will address the problem of long-term retirement savings 6
The public sector pension reform is a slow and controversial process and may not boost pension savings 7
Government focus will renew interest in pension savings helping providers as well 7
There are doubts as to whether personal accounts will hit the target 7
The government is continually showing a lack of continuity on pension policy, undermining its importance 7
Leveling down employers' contribution will make pension provision worse 8
The government should still ensure that it pays to save against the impact of means-testing 8
Employers may be tempted to minimize costs of personal accounts through lower employee salaries 8
However, a contributions ceiling has been set to prevent the weakening of existing pensions provision 9
The effectiveness of personal accounts is uncertain and the market continues to polarize between stakeholder and SIPP pensions 9
Providers can win new business in the middle market with SIPPs 9
Offering low-cost SIPPs presents an opportunity 10
Low-cost and vanilla SIPPs will meet the needs of the 'recessionary consumer' 10
New SIPP powers to hold protected rights will increase flexibility and investment choice for consumers 10
However, a SIPP mis-selling scandal may come to pass if greater clarity is not introduced to the market 11
Recent economic troubles may prove disastrous for SIPPs 11
Providers can capitalize further from SIPPs by distributing them on an efficient wrap platform 11
The increasing interest in SIPPs does not necessarily signal an end for personal and stakeholder pensions 12
Providers should focus on a more relevant retirement planning system by addressing market conditions and demographics 12
A more flexible retirement planning program is needed to make the pensions industry more viable and sustainable 12
Current property and equities market presents huge buying opportunities for starting a pension 13
Variable annuities are increasingly becoming part of a retirement and investment plan 14
Combining variable annuities with a SIPP will give investors an ideal balance for their retirement strategy 14
There are currently alternatives to pension saving, the choice of which is dependent on investor attitude and preferences 15
Individual savings accounts 15
Venture capital trusts 15
Provider strategies for product diversification and redesign need to be examined to address the barriers to save 16
Affordability is an obstacle amongst most non-savers 16
Targeted marketing, rather than new product development, must be the focus 17
Providers and advisors should support people to exercise personal responsibility 17
People should be encouraged with a long-term view of pension savings 17
Providers should take note of the need for a 'Money Guidance' service for greater consumer access to retirement planning tools 18
Providers must communicate with advisors more readily 19
MARKET CONTEXT 20
The dominance of personal pensions has been overshadowed by the rise of SIPPs 20
Despite the dominance of personal pensions, SIPPs have experienced the most impressive year-on-year growth over the last five years 20
SIPPs continue to be the most popular product in the regular premium pension market 21
Investor desire for self-control has been a driver for choice of product 21
A clear definition of SIPPs is necessary to ensure that distributors do not sell an incorrectly defined product 22
Group SIPPs are expected to flourish but their emergence should be approached with caution 22
The group SIPP market offers members a flexible and engaging product, with a range of investment options tailored to suit the different needs of members 22
There remain differences of opinion in the industry about the group SIPP product 22
Industry views of a group SIPP proposition depend on the provider's existing market 23
IFAs are the dominant distribution channel for pension products 23
IFAs are well-established in the pensions market but many are shifting their focus up market 23
SIPPs require a clear and transparent charging structure to engage with changing regulatory requirements 24
Online distribution remains a promising area in the individual pensions market 25
Wrap platforms may soon reach a proliferation peak 25
The RDR is the main piece of distribution regulation in the market 26
The RDR will increase the quality of advice and promote transparency of charges in retirement planning 26
The RDR initiative aims to address current market failures 26
The latest proposal outlines a clear distinction between 'sales' and 'advice' 27
Customer agreed remuneration will allow competitive forces to work in favor of consumers 27
AEGON heads the competition in the single and regular premium pensions market 27
AEGON dominates the pensions market in both the single and regular premium pensions in 2007 27
The company has secured distribution deals to increase market share 28
AEGON has combined its individual and corporate pensions businesses 29
AEGON has achieved numerous awards in 2008 29
Many competitors have focused their energy on their SIPP offerings 30
Prudential has brought a new flexible SIPP to the market in partnership with Cofunds 30
Standard Life allows SIPPs to access its FundZone fund supermarket 31
Standard Life has also committed resources towards helping advisors with SIPPs 31
An increasing number of non-insured SIPPs from non-life companies are in force in the market 31
Hargreaves Lansdown has become a leading non-life SIPP provider with its Vantage SIPP 32
A J Bell has put significant attention towards SIPPs and offers three plans to investors 33
Market forecasts 34
SIPP products will shape the pensions market at the expense of stakeholder and personal pensions 34
Group personal pensions are forecasted to dominate the regular premium pensions market 35
APPENDIX 37
Data 37
Definitions 40
Single premium policy 40
Regular premium 40
New business 40
Life based savings products 40
In-specie contribution 40
Pension product definitions 41
Personal pensions 41
Stakeholder pensions 41
Group personal pensions 41
DSS rebates 41
Employer sponsored stakeholder pension (ESS) 41
SIPPs (self invested personal pensions) 41
ABI definitions of distribution channels 41
Independent financial advisors (IFAs) 41
Direct sales forces 42
Tied agents 42
Multi-tied agents 42
Bancassurance 42
Direct marketing 42
Other 42
Further reading 42
Ask the analyst 42
Datamonitor consulting 43
Disclaimer 43
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Table 1: Single premium pensions new business, £m APE, 2003-07 37
Table 2: Regular premiums pensions new business, £m APE, 2003-07 37
Table 3: Forecast single premium pensions new business, £m APE, 2008-12 38
Table 4: Forecast regular premium pensions new business, £m APE, 2008-12 38
Table 5: Total single and regular premium pensions new business by distribution, £m APE, 2003-07 39
Table 6: Single premium pensions new business for the top ten life companies, £m APE, 2003-07 39
Table 7: Regular premium pensions new business for the top ten life companies, £m APE, 2003-07 40
Figure 1: Advisors desire more communication with providers 19
Figure 2: Personal pensions and SIPPs dominate single premium pension sales in 2007 20
Figure 3: SIPPs have experienced a CAGR of 203% in the regular premium pensions market 21
Figure 4: IFAs dominate the distribution of pension products 24
Figure 5: The market for single premium pensions is dominated by AEGON 29
Figure 6: AEGON heads the group of leading regular premium pension providers in 2007 30
Figure 7: The SIPPs market will see a slight increase in non-insured SIPPs business over the next five years 32
Figure 8: The single premium pensions market is forecast to remain static over the next 5 years 34
Figure 9: Regular pensions sales will rise by a CAGR of 6% between 2008 and 2012 35
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