Saving for Retirement: The non-pension alternatives

Introduction

This report looks at the changing way in which people are addressing their finances. In the wake of the global economic crisis, consumers are more risk aware and have a distinct lack of trust in financial institutions. The change that the pensions and retirement market has seen recently and will see going forward has resulted in consumers taking a more hands-on approach to their finances.

Features and benefits

* Looks at the changing attitudes of consumers towards their finances and indentifies key trends that are affecting the pensions market.
* Considers the mistrust consumers have in financial institutions, resulting in a low level of engagement in long term savings.
* Identifies alternative products in which consumers can store their wealth until retirement and which they use as a provision of income in retirement.

Highlights

The way in which consumers are approaching retirement is changing as issues such as longevity impact on retirement plans. Many consumers are realising that entering into full retirement at pensionable age will become less common, with changes in legislation supporting the older workforce.

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Executive Summary
Saving for retirement is becoming an increasingly important issue
Providers offer a range of different pension products to consumers
Why are consumers failing to engage with traditional pension products?
Alternative retirement products meet the needs of consumers
The UK savings landscape will continue to experience change
Changing attitudes towards saving will create opportunities for alternative products
OVERVIEW
Catalyst
Summary
SAVING FOR RETIREMENT
The importance of saving towards retirement is becoming more publicized
Desired consumer retirement income levels will not be met
The importance of saving for retirement is undervalued
The pension industry and its regulation are failing to meet consumers' key concerns
Providers offer a range of different pension products to consumers
The features of stakeholder pensions could be beneficial to consumers
Personal pensions are aimed at mass affluent consumers
SIPPs give consumers more control over their pension pots
GPPs are often used as alternatives to occupational pension schemes
Workplace pensions offer more scope for incentives than private pensions
Traditional pension products are failing for a number of reasons
CONSUMER COMPLEXITIES
Why are consumers failing to engage with traditional pension products?
Over 34% of consumers who do not hold a pension, cannot afford to do so
Almost 16% of consumers who do not hold a pension do not prioritize long-term savings
Some consumers choose to save for retirement in other ways
In the eyes of some consumers, pensions represent a restriction on their financial freedoms
Almost 8% of consumers are put off from holding a pension because they do not trust providers
Property will be the main source of income for almost 6% of consumers
Over 4% of consumers believe that the state pension will provide them with an adequate income stream
The government has made significant changes to pension and retirement regulations
The government called a halt to compulsory annuitization in April 2011
Employers will no longer be able to force employees to retire at the state pension age
Automatic enrolment into a pension scheme will be introduced in 2012
Changes to pensions tax relief will be implemented as of tax year 2011–12
Consumers want more flexibility and control over their savings
SEEKING ALTERNATIVE STRATEGIES
There are a range of alternative products available for long-term saving
Buy-to-let provides regular income or a lump sum capital payout in retirement
A range of investment bonds offer benefits to long-term savers
Mutual funds allow small investors to achieve high levels of diversification
Exchange traded funds provide affordable diversification
Individual savings accounts are instant access, tax efficient savings vehicles
Other retirement planning products include commodities and collectables
There are clear benefits to alternative retirement products
Consumers value accessibility during an uncertain economic climate
Consumer engagement with financial products is changing
Consumers are drawn to pensions for their ease and tax efficiency
THE DEMAND FOR ALTERNATIVE RETIREMENT PRODUCTS
The UK savings landscape will continue to experience change
Consumers and the industry will continue to have misaligned views on the meaning of long-term savings
Other financial burdens will remain a priority over long-term saving
Consumers will continue to require more flexibility in their savings and wealth accumulation
The Retail Distribution Review will result in advisors focusing on mass affluent consumers
Consumers will not rush towards pension products in the future
The pensions market will remain flat over the forecast period
NESTs will make consumers even more complacent
Changing attitudes towards saving will create opportunities for alternative products
IFAs will continue to develop retirement strategies for their clients
Consumer interest in finance and investment will drive others to use alternative retirement products
Consumers without an active interest in finance and investment will not seek out the majority of alternative retirement products
APPENDIX
Supporting tables
Further reading
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