Life-based Savings Within the UK Savings Landscape

Introduction

The UK life and pension providers have realized the necessity of engaging with consumers and not just developing relationships with intermediaries in order to engage them with saving.

Scope

*Examines the current shape of consumers’ savings behavior and explore factors that are currently limiting this.

*Assesses strategies to combat barriers to save for investment policies and identifies consumer segments to target.

*Provides actionable points to help life and pension companies find innovative methods customer engagement to life-based savings.

Highlights

The life and pensions industry has recognized the need to engage with consumers. However, consumer attitudes are reflected in their purchasing decisions of life-based savings products and their behaviors have been affected by the conditions in the financial markets.

Reasons to Purchase

*Identify key consumer segments to target for life-based savings products.

*Access analyses documenting the trends behind consumer’ attitudes to saving.

*Provides actions points to aid strategic decision making based on the insights analyzed.


Report Highlights
The life and pensions industry has recognized the need to engage with consumers. However, consumer attitudes are reflected in their purchasing decisions of life-based savings products and their behaviors have been affected by the conditions in the financial markets.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Table of Contents 3
Table of figures 4
Table of tables 5
CONSUMERS' ATTITUDES TO SAVINGS 6
Introduction 6
Many consumers believe that it is their individual responsibility to save but many lack the guidance on how to achieve this 6
People are not saving for the future, assuming that they will be looked after by the buckling state system 6
Consumers have a short-term outlook when making saving and investment decisions 6
Customers lack confidence in poorly performing equity-based products 7
However, consumers are concerned about the eroded value of their savings but are simply lacking in guidance 7
Consumers may have the intention to save but their financial position makes it an unfeasible option 8
Consumers are sacrificing savings to put the priority towards clearing their debts 8
Personal debt levels have been increasing due to a credit-dominated society and worsened by the economic crisis 9
Young people have embraced credit as a way of life and are most in debt 11
Low Bank of England interest rates have offset the desire to save 11
Consumer confidence to financial services suffered a blow during the financial crisis 11
Consumer confidence in financial institutions have plummeted during the financial crisis 11
Consumers who are seeking financial guidance have also been priced out of the savings market and unable to afford advice 12
High commissions and poor quality of advice on the part of advisors are concerns in the life-based investment market 12
Quality of advice accompanying investment decisions has come into question as investment bonds perform poorly 12
There is a misconception in the market that bonds are a no- or low-risk investment 13
However, poor quality service does exist in the life-based investment market 13
BARRIERS AGAINST LONG-TERM SAVINGS AND LIFE-BASED INVESTMENTS 14
Life-based investments are perceived as more suitable for the affluent 14
Providers have made attempts to satisfy the demand for guarantees and capital protection by risk wary customers 14
However, providers have found it difficult to protect itself against the risk of guarantees becoming too onerous 15
ENGAGING CONSUMERS WITH LIFE-BASED INVESTMENTS 16
Education and improved communication strategies will help providers engage with consumers 16
Consumers need effective and regular communication 16
Providers should highlight investment bonds as an alternative retirement strategy to revive sales 17
Investment bonds offer flexible retirement planning strategies for those approaching retirement 17
The ability to withdraw money in the lifetime of the investment makes investment bonds attractive to the changing retirement planning landscape 17
Investment bonds also offer the customer the advantage of income tax deferral 18
Providers should highlight the complementary nature of investment bonds to ordinary pension plans 18
Investment bonds are suitable for different investment strategies 18
A bond is also an efficient investment for inheritance tax planning 18
Providers need to innovate life-based investments to suit the risk-profile of today's consumers 19
Product development must focus on flexibility 19
APPENDIX 20
Definitions 20
Life-based savings products 20
Life assurance 20
Term assurance 20
Income protection 20
Critical illness 20
Collective life 21
ISAs 21
Personal pensions 21
Stakeholder pensions 21
Group personal pensions (GPPs) 21
SIPPs (Self Invested Personal Pensions) 21
ABI definitions of distribution channels 21
Independent financial advisors (IFAs) 21
Direct sales forces 22
Tied agents 22
Multi-tied agents 22
Bancassurance 22
Direct marketing 22
Telesales 22
Other 22
Further reading 22
Ask the analyst 23
Datamonitor consulting 23
Disclaimer 23
List of Tables
Table 1: Gross lending and balances outstanding, £m, 2003-09 10
List of Figures
Figure 1: Consumers were more concerned about outstanding debts and repayments than the value of their savings and investments 9
Figure 2: Gross lending has declined since 2004 but balances outstanding only started to decline in 2009 10

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