UK Life and Pensions Distribution Landscape Overview 2007

An overview of the UK life and pensions distribution landscape. The report looks at what products are sold through the key distribution channels in the UK, who the largest players are, and the factors that are shaping the market.



Report Highlights
The retail distribution of life and pensions products in the UK has been dominated by IFAs, and to a lesser extent, bancassurance. The FSA's RDR and other market reforms, along with technological changes will challenge this dominance and the UK is likely to see a changing distribution landscape. IFAs are increasingly moving their business upmarket, toward those with more sophisticated financial needs, opening the way for a more vanilla Primary Advice to be taken up by banks. Technology and communications, along with pension market reforms, are having dramatic changes on alternative forms of sales, such as direct and worksite marketing. It is likely that sales via these channels will increase.


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SUMMARY 1
ANALYSIS 2
IFAs remain the dominant distributor in the retail market for life assurance, pensions and retail investment products in the UK 2
Independent Financial Advisors dominate the provision of investment products and financial advice 2
The IFA channel accounts for over 70% of total life and pensions sales in the UK 4
The Financial Advisor channel is forecast to remain dominant going forward 9
The most popular product areas among UK investors are SIPPs, REITs and Wraps according to IFAs 14
IFAs are well-established in the market but many are shifting their focus upmarket 14
The bancassurance channel is growing in market share, with about 15% of total life and pensions sales 15
The current bancassurance market is dominated by unit-linked bonds and mortgage-related and savings-related term assurance 16
Bancassurance going forward will continue to be dominated by unit-linked bonds and mortgage-related and savings-related term assurance 22
Direct and worksite marketing are on the increase 27
Direct marketing and sales of life and pensions products and retail investments in the UK 27
Direct marketing is sent directly to the consumer and has traceable, measurable results 32
Technology is affecting the way providers and advisors conduct their business 32
Worksite marketing of life and pensions products and retail investments in the UK 33
IFAs and providers both undertake worksite marketing 33
Worksite marketing is likely to grow in prominence 33
The FSA's Retail Distribution Review aims to increase consumer access to financial products and services through offering a tiered system of financial advice 34
The FSA's Review of Retail Distribution takes place within a developing and changing legislative and technological market 34
The FSA's Retail Distribution Review has developed five key themes for reform 34
There are five key themes to the FSA's Retail Distribution Review 35
Sustainability of the distribution sector 35
Professionalism and reputation of the sector 35
Impact of incentives 36
Customer access to financial products and services 36
Regulatory barriers and enablers 37
The Review suggests two key industry features would improve the delivery of products and services appropriate to the needs of consumers 37
Higher standards could increase costs for firms 37
Wider access may require the development of other types of less comprehensive and less costly services 37
The market for advice will be segmented in terms of the services provided to consumers 37
The RDR is likely to impact on UK distribution channels by segmenting the IFA structure and, in the context of a changing legislative environment, increase direct and worksite marketing 39
The dominance of IFAs will be challenged in the new regime 40
The market for financial advice is adapting to allow more customers to benefit from advice 40
Full and focused financial advice analyses financial needs in greater depth 40
Primary Advice is a regulated service providing straightforward financial advice 40
There exists a wide range of potential suppliers of primary advice 41
There is the potential for banks to challenge the dominance of IFAs via the Primary Advice service 41
Some financial advisory firms may find the provision of Primary Advice is compatible with their core business 41
There is the potential for different financial services firms to offer Primary Advice by worksite marketing 41
Pension market reforms will increase worksite marketing and change its nature 42
Worksite marketing at large firms requires providers to have a specific infrastructure 42
Enhanced technology and communications tools support worksite marketing 43
IFAs are well-established in the market but many are shifting their focus upmarket 43
APPENDIX 44
Definitions 44
Single premium policy 44
Regular premium 44
New business 44
Wrap accounts 44
Product definitions 44
Life based savings products 44
Life Assurance 44
Single Premium Life 45
With-profit bond 45
Unit-linked bond 45
Income and growth bonds 45
Guaranteed Equity bonds 46
Distribution bonds 46
Purchased Life Annuities 46
Other bonds 46
Annual Premium Life 46
Endowment Policy 46
Whole of Life Insurance 47
Term Assurance 47
Income Protection 47
Critical Illness 47
Collective Life 47
ISAs 47
Personal Pensions 47
Stakeholder Pensions 48
Group personal pensions 48
DSS Rebates 48
Employer Sponsored Stakeholder pension (ESS) 48
SIPPs (Self Invested Personal Pensions) 48
FSAVC (Free-Standing Additional Voluntary Contributions) 48
ABI definitions of distribution channels 48
Independent Financial Advisors (IFAs) 48
Direct sales forces 48
Tied agents 49
Multi-tied agents 49
Bancassurance 49
Direct marketing 49
Telesales 49
Other 49
Matrix-Data definitions 49
IFA firm types 49
Grossed Annual Aggregate Turnover 50
IFA sales people 50
Methodology 50
Further reading 50
Relevant links 50
Ask the analyst 50
Datamonitor consulting 51
Disclaimer 51

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Table 1: Historic single premium life sales through the FA channel, 2000-2006, £m APE 5
Table 2: Historic regular premium life sales through the FA channel, 2000-2006, £m APE 6
Table 3: Historic single premium pensions through the FA channel, 2001-2006, £m APE 7
Table 4: Historic regular premium pensions through the FA channel, 2001-2006, £m APE 8
Table 5: Forecast single premium life sales through the financial advisor channel, 2007-2011, £m APE 10
Table 6: Forecast regular premium life sales through the financial advisor channel, 2007-2011, £m APE 11
Table 7: Forecast single premium pensions through the financial advisor channel, 2007-2011, £m APE 12
Table 8: Forecast regular premium pensions thorough the financial advisor channel, 2007-2011, £m APE 13
Table 9: Forecast regular premium pensions through the financial advisor channel, 2007-2011, £m APE 14
Table 10: Historic single premium life sales through the bancassurance channel, 2000-2006, £m APE 17
Table 11: Historic regular premium life sales through the bancassurance channel, 2000-2006, £m APE 19
Table 12: Historic single premium pensions sales through the bancassurance channel, 2001-2006, £m APE 20
Table 13: Historic regular premium pensions sales through the bancassurance channel, 2001-2006, £m APE 21
Table 14: Forecast single premium life sales through the bancassurance channel, 2007-2011, £m APE 23
Table 15: Forecast regular premium life sales through the bancassurance channel, 2007-2011, £m APE 24
Table 16: Forecast single premium pensions through the bancassurance channel, 2007-2011 25
Table 17: Forecast regular premium pensions through the bancassurance channel, 2007-2011, £m APE 26
Table 18: Pensions advertising expenditure, £ and by company (top 20 spenders) as a % of total2006 29
Table 19: Life insurance advertising expenditure, £ and by company (top 20 spenders) as a % of total 31


Figure 1: Financial Advisors dominate life and pensions new business 3
Figure 2: Unit-linked bonds account for 83% of total single premium life sales through the FA channel 4
Figure 3: Savings-related and mortgage-related term assurance dominate regular premium life sales through the FA channel 5
Figure 4: Personal pensions currently dominate single premium pension sales through the FA channel 6
Figure 5: Group personal pensions sales dominate the regular premium pensions market through the FA channel 8
Figure 6: Unit-linked bonds are forecast to dominate single premium life sales through the financial advisor channel 9
Figure 7: Savings-related and mortgage-related term assurance are forecast to dominate regular premium life sales through the financial advisor channel 10
Figure 8: SIPPs are forecast to dominate single premium pensions sales through the financial advisor channel by 2011 12
Figure 9: Personal pensions are forecast to decline in their dominance of the regular premium pensions market through the financial advisor channel as clients move into SIPPs and prepare for personal accounts 13
Figure 10: Multi-tie FAs are increasing their share of total life and pensions new business 15
Figure 11: Unit-linked bonds currently account for 65% of total single premium life sales through the bancassurance channel 17
Figure 12: Mortgage-related & savings-related term assurance account for 85% of total regular premium life sales through the bancassurance channel 18
Figure 13: Stakeholder and personal pensions currently dominate single premium pensions sales through the bancassurance channel, 2001-2006, £m APE 20
Figure 14: Stakeholder pensions continue to dominate the regular premium pensions market through the bancassurance channel, 2001-2006, £m APE 21
Figure 15: Unit-linked bonds are forecast to continue to dominate single premium life sales by bancassurance 22
Figure 16: Mortgage-related and savings-related term assurance is forecast to continue to dominate regular premium life sales through the bancassurance channel 23
Figure 17: Stakeholder pensions are forecast to continue to dominate the single premium pensions market through the bancassurance channel 25
Figure 18: Forecast regular premium pensions through the bancassurance channel, 2007-2011 26
Figure 19: Norwich Union dominates pensions advertising expenditure, 2006 28
Figure 20: Axa Sun Life dominates life assurance advertising expenditure, 2006 30
Figure 21: The future of retail distribution: proposed services 39


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