The UK Post-Retirement Pensions Market 2019

The UK Post-Retirement Pensions Market 2019



This report looks into the UK at- and post-retirement pensions market, exploring how it has been affected by an aging population and recent changes to the laws governing pensions. It also looks at consumers attitudes and behaviors regarding advice and transfers from defined benefit to defined contribution pensions, among other topics. The report leverages findings from our 2019 UK Life & Pensions Survey.

With an aging population, the number of individuals in retirement continues to grow year on year. However, the market faces many challenges, including a low-paying state pension and, for many, inadequate pension pots. Pension saving is improving thanks to auto-enrollment, although the benefits of this will largely be felt by younger generations. The pension freedoms have also brought significant changes to the way individuals access pensions.

Full withdrawals are now commonplace - especially for low-value pots - while income drawdown is the preferred option for higher-value pension plans. This is all set against a context of relatively limited uptake of financial advice, in part due to the costs involved. Robo-advice may be one solution to provide low-cost advice, while government initiatives may also succeed in boosting consumer engagement and confidence in retirement saving.

Scope

- Auto-enrollment is boosting workplace pensions, with 2018 annual premium equivalent growing by 22% on 2017. Two thirds of individuals in their 20s have started a pension through auto-enrollment, compared to 30% of those in their 50s.
- 61.1% of retired individuals state their lifestyle is as expected in retirement, while 18.2% state it is better than expected. The majority of these will have retired before the pension freedoms were introduced.
- Financial advisors state that retirement is the number one prompt to seek financial advice, but uptake is varied. For example, 62% of full pensions withdrawals are made with no advice or guidance.

Reasons to buy

- Understand the impact of recent legislation on consumer behaviors in the at- and post-retirement market.
- Explore how consumers are funding their retirement.
- Discover how technology and robo-advice can be used to encourage individuals to save for retirement.
- Learn about consumers attitudes towards defined benefit pension transfers.

1. EXECUTIVE SUMMARY 2
1.1. The post-retirement pensions market is ever growing and increasingly complex 2
1.2. Key findings 2
1.3. Critical success factors 2
2. THE POST-RETIREMENT PENSIONS MARKET IN CONTEXT 9
2.1. The size of the at- and post-retirement market is growing, presenting an opportunity for providers and advisors 9
2.1.1. The UK population continues to increase, with over 65s accounting for a growing proportion 9
2.1.2. Over half of individuals - particularly those with a high household income - intend to retire before the state retirement age 11
2.2. The state pension is limited and funding is under increasing pressure 13
2.2.1. The UKs state pension is one of the lowest-paying internationally 13
2.2.2. The Government Actuarys Department has warned that the National Insurance Fund is likely to run out in 2032 without intervention 14
2.2.3. Changes to the SPA are mitigating some of the pressure on the fund 15
2.2.4. SPA changes will not be enough to improve state pension funding 15
2.2.5. Successful legal challenges to public sector pension reforms also represent a funding challenge for the government 16
2.3. Private pension pots remain low, but auto-enrollment is helping to improve the situation in the long term 16
2.3.1. Over half of pension pots among over 55s are 30,000 and below 16
2.3.2. Pension saving is on the up thanks to auto-enrollment 18
2.3.3. The benefits of auto-enrollment will largely be felt by young individuals 19
2.3.4. DB pensions are the most popular type of pension among over 40s 19
2.3.5. There has been a definite shift towards DC pensions as companies de-risk 20
2.3.6. CDCs are set to become a new type of occupational pension for the UK 21
2.4. The impact of the pension freedoms is better understood, and the FCA is introducing regulations to improve retirement outcomes 21
2.4.1. The 2015 pension freedoms fundamentally changed how consumers can access their pensions 21
2.4.2. Following its Retirement Outcomes Review, the FCA flagged a number of concerns 22
2.4.3. The FCA introduced a series of remedies in 2019 to improve retirement outcomes 23
2.5. Beyond retirement outcomes, DB to DC transfers are dominating the regulatory agenda 23
2.5.1. The surge in DB to DC transfers is attracting notable regulatory scrutiny 23
2.5.2. Data collected by the FCA from those with DB transfer advice permission raised misgivings over advisor practices 24
2.5.3. A key regulatory development has been the FCAs and The Pensions Regulators joint pensions strategy 25
3. TRENDS IN FUNDING RETIREMENT 26
3.1. Pensions are the bedrock of retirement funding plans 26
3.1.1. The state pension is the most commonly cited plan for retirement funding, followed by workplace and private pensions 26
3.1.2. Over 55s typically seek a monthly income of between 1,000 and 1,999 in retirement 27
3.1.3. On retirement, low-value pensions are most likely to be fully withdrawn while higher-value pots go into drawdown 28
3.1.4. Full cash withdrawal is now the preferred method of accessing pension pots for the first time 28
3.1.5. The majority of full cash withdrawals are linked to small pension pots, with funds most commonly spent on everyday expenses 29
3.1.6. Income drawdown is the preferred retirement income product for large pension pots 31
3.1.7. The rise of income drawdown has come at the expense of annuities 32
3.1.8. Annuity sales plunged in the wake of the pension freedoms, but the decline appears to have tapered 33
3.2. A small proportion of over 55s choose to defer their pensions and benefit from extra growth 34
3.2.1. 15.2% of over 55s choose to defer taking their pension 34
3.3. Retired individuals have confidence in their retirement funds 36
3.3.1. Over 60% of those who are retired state their lifestyle is as expected 36
4. FINANCIAL ADVICE IN THE POST-RETIREMENT MARKET 39
4.1. Retirement is a key driver for individuals to seek financial advice, but uptake is mixed 39
4.1.1. Financial advisors report that retirement is the key prompt for seeking financial advice 39
4.1.2. Uptake of advice is mixed and varies significantly by method of accessing a pension 40
4.1.3. Regulation likely plays a role in why those approaching retirement seek or do not seek advice 41
4.1.4. For over 55s who use a financial advisor, the key considerations are brand, relationship, and price 41
4.2. Robo-advice presents one option for retirees looking for a low-cost investment option 42
4.2.1. Robo-advice companies have proliferated in recent years in the broader investment space 42
4.2.2. There has been less robo activity in the pensions and retirement space, although Wealth Wizards is one example of a player that has specialized 43
4.3. The government wants to improve engagement with retirement saving 44
4.3.1. Pensions Dashboard is the flagship project to boost consumer engagement with pensions 44
4.3.2. Plans are also afoot to create an income drawdown tool 45
5. APPENDIX 46

List Of Tables

Table 1: Size of main pension pot split by gender (all ages) 17

List Of Figures

Figure 1: The UK population is aging, with over 65s estimated to make up 30.2% of the adult population by 2050 10
Figure 2: The over 65 population currently grows by around 200,000 individuals each year, but this will increase to 300,00 over the next decade 11
Figure 3: While the majority of adults plan to retire at the state retirement age, around a third intend to retire before then 12
Figure 4: Those with higher household incomes are much more likely to retire early 13
Figure 5: The National Insurance Fund is projected to run out by 2032 14
Figure 6: The SPA has increased in recent years, with further rises on the horizon 15
Figure 7: A concerning proportion of over 55s are unaware of how big their main pension pot is 17
Figure 8: UK pensions APE grew strongly in 2018 thanks to the increase in auto-enrollment minimum contributions 18
Figure 9: Auto-enrollment has succeeded in driving pension saving among younger workers 19
Figure 10: DB pensions are more prevalent among those aged 40 and above 20
Figure 11: Consumers approaching retirement have many options in terms of drawing income 22
Figure 12: Aside from the ability to access pension freedoms, advice from family, friends, and advisors is the key driver of DB to DC transfers 24
Figure 13: Over 55s are predominantly relying on the state pension to fund retirement 27
Figure 14: Over 55s are typically seeking a monthly income of between 1,000 and 1,999 in retirement 28
Figure 15: Full cash withdrawal is the preferred method of accessing pension pots for the first time 29
Figure 16: 64% of full cash withdrawals are accounted for by pots of less than 10,000 in value 30
Figure 17: Everyday expenses is the most common use of funds withdrawn from a pension 31
Figure 18: Drawdown policies are the most common way of accessing high-value pensions 32
Figure 19: Income drawdown new premiums almost tripled over the review period 33
Figure 20: The dramatic decline in annuity sales has started to level off 34
Figure 21: 15.2% of over 55s have deferred taking their pension 35
Figure 22: Those who defer taking a pension predominantly do so to allow the fund to grow in value 36
Figure 23: The majority of retired individuals state their lifestyle is as expected 37
Figure 24: Over 55s are largely confident that their pension assets and savings will last a lifetime 38
Figure 25: Retirement is the number one prompt for clients to seek financial advice 39
Figure 26: The level of advice sought on withdrawing from a pension pot varies by method of access 40
Figure 27: Brand and reputation drive choice of financial advisor among over 55s 42
Figure 28: Wealth Wizards Turo platform targets both consumers and advisors 43
Figure 29: Tech company EValue launched its Pensions Freedom Planner in September 2019 44

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