UK At-retirement Market 2007

This report looks at what products have been launched in this area of the market, how successful they have been and what challenges are facing providers and distributors in the at-retirement market.

Report Highlights


Retirement income products provide an income for those in the latter part of their lives. It is a fast growing market. The demographic bump of the "baby boomer" generation entering retirement is set to boost the market's size and wealth, with increasing longevity having a major impact on the market. The market is dominated by annuities, particularly fixed-rate products which offer people the security of a guaranteed income in retirement. However, hybrid products are rapidly growing in popularity, as are income drawdown products, boosted by people's increasing need for a flexible income in retirement. Prudential is the dominant player in the annuity market Norwich Union and Standard Life also strong players. New and innovative entrants have also arrived in recent years, particularly from the US, including Metlife and Hartford.
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CHAPTER 1 EXECUTIVE SUMMARY 3
Market Focus 3
Sector Issues 3
Competitor Issues 3
Distribution Dynamics 4
CHAPTER 2 INTRODUCTION 12
What is this report about? 12
Who is the target reader? 12
How to use this report 12
CHAPTER 3 MARKET FOCUS 14
Introduction 14
Key findings 14
Historic Data 15
Key Products 16
Pension annuities are the leading retirement product 16
Fixed-rate annuities are less flexible 17
Index-linked annuities can be pricey 17
Investment-linked annuities are only a small part of the total market 18
Open annuities offer a lump sum at death 18
The purchased life annuities market is under-developed 18
Value-Protected annuities provide protection of capital 19
Enhanced annuities are a growing market 19
Alternative products 20
Income drawdown is a popular alternative when the annuity market is unfavourable 20
Strengths of income drawdown 20
Weaknesses of income drawdown 20
Alternatively Secured Pensions are a controversial topic 21
Trivial Commutation is unlikely to affect large numbers of people 21
Hybrid annuities offer more flexibility and are likely to develop fast 22
The equity release market has recently seen strong growth 22
Strengths of equity release 23
Weaknesses of equity release 23
Trends and Drivers 23
Life expectancy is the single most pressing issue affecting the UK annuity market 23
Changes in attitude and greater awareness has contributed to an increase in longevity 25
Increased longevity makes annuities more expensive 25
Interest rates have an impact on annuity rates 26
A-Day has had a negative effect on annuity rates 26
Customer attitudes are changing slowly, but education is paramount 27
Regulation 28
ASP is the most controversial issue in the at-retirement market in 2007 28
UCITS III has had a positive impact on the market 29
The European Age Discrimination directive will impact product development 29
A-Day has led to increased sales of alternative products such as income drawdown 30
The majority of providers believe more legislation is necessary 31
CHAPTER 4 SECTOR ISSUES 32
Introduction 32
Key findings 32
Key Issues 33
Consumer confidence has been affected by government indecision 33
The U-turn on ASP is likely to have a positive effect on the annuity market 34
The ASP is not the Holy Grail 34
Trivial commutation is unlikely to have a big impact 35
There is an over-reliance on property in retirement portfolios 36
Equity release is becoming increasingly popular 36
1) Lifetime Mortgages 37
2) Reversion Schemes 37
Equity release is primarily sold through intermediaries 37
Strategic Issues 38
Life expectancy is changing annuity pricing structures 38
Consumers are moving towards more diversified alternatives 38
Resolution of Issues 39
Flexibility is important to maintain a steady income 39
Providers must place more of a priority on the annuity business 39
CHAPTER 5 COMPETITOR ISSUES 41
Introduction 41
Market share 41
Recent Product Developments 43
The UK market remains dominated by a number of leading annuity providers 43
Scottish Widows is one of the UK's most recognized brands 43
Legal & General is one of the foremost UK insurance companies 44
Prudential is a leader in the UK retirement market 45
Standard Life is one of the largest UK provider of pensions in the UK 46
Norwich Union sales were boosted by A-Day 47
Friends Provident targets wealthy customers 48
Retirement investment plan 49
New entries into the UK at-retirement market 49
Metlife is one of the USA's largest insurers 49
Just Retirement focuses only on retirement products 49
Living Time attempts to offer more flexible products 51
Aegon Scottish Equitable saw high levels of growth in 2006 52
Hartford is the largest global provider of investment bonds 53
Innovation is growing in the at-retirement market 53
Metlife have introduced a 'unique' new product 53
New entrants are driving growth in the non-convential arena 54
Income Drawdown is still dominated by three major players 55
Prudential, Scottish Widows and Standard Life are the key providers in the income drawdown market 55
Prudential 55
Scottish Widows 56
Standard Life 56
The equity release market is growing 57
The equity release market is no longer dominated by the two giants 57
New entrants are vying for a position in the market 58
Product innovation is growing 59
Distribution is key 59
CHAPTER 6 DISTRIBUTION DYNAMICS 60
Introduction 60
Key findings 60
Independent intermediaries account for around 70% of pension annuities business 61
Independents also dominate the income drawdown market 62
Increase in competition due to high margins for annuity business 62
FSA review of distribution may be a catalyst for change 63
But IFAs will play a crucial role in the new retirement era 63
CHAPTER 7 APPENDIX 64
Definitions 64
Asociation of British Insurers definitions of products 64
Pension annuities 64
Income drawdown 64
Association of British Insurers definitions of distribution channels 64
Independent Financial Advisers (IFAs) 64
Direct sales forces 65
Tied agents 65
Multi-tied agents 65
Bancassurance 65
Direct marketing 65
Telesales 66
Other 66
Other definitions 66
Additional Voluntary Contributions (AVCs) 66
Annuity 66
Defined contribution pension scheme 67
Defined benefits pension scheme 67
Research methodology 67
Future readings 67
Life and Pensions SPP 67
Interactive Databases 67
Reports and Briefs 68
Financial Advice Market SPP 68
SPP writing team 68
How to contact experts in your industry 70

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Table 1: Pension Annuities in Force, 1995-2006 15
Table 2: Total new premiums, 2002-2006 15
Table 3: The UK Income Drawdown Market 2004-2006 31
Table 4: The UK Annuity Market, 1994-2005 33
Table 3: Annuities with-profits, total business 2005 41
Table 4: Non-profit annuities, total business 2006 42
Table 5: Non-profit impaired life annuities, total business 2006 42
Table 8: Pension annuities sales 2002-06, split by distribution channel 61
Table 9: Income drawdown sales 2002-06, split by distribution channel 62


Figure 1: UK At-Retirement 2007: Available Briefs 13
Figure 2: Annuities can be used to provide a level or increasing income 17
Figure 3: Life expectancy in the UK has reached record levels 24
Figure 4: Women are living almost 20 years longer at age 65 25
Figure 5: Income drawdown sales increased significantly in Q2 2006 as the price fell 30

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