Group Personal Pensions - UK

Group Personal Pensions - UK

The whole pensions sector continues to be an area of long-term focus and huge change. The UK has a rapidly deteriorating prognosis for the provision of income in retirement for an ageing population. It is clear the state cannot provide a ‘living’ income in retirement for its population. The so-called ‘second pillar’ of good occupational provision has been eroded over the last ten years by a combination of poor investment returns, ever-increasing costs, a more demanding and rigorous legal, governance and regulatory burden and changes in the nature of the relationship between employers and employees. The third pillar - individual saving for retirement - has become increasingly important but due to means testing and interaction of saving for a pension with entitlement to state benefits, it has yet to become the main focus of the sector.

Between the second and third pillars lies a ‘hybrid’ series of products that might loosely be described as grouped individual arrangements. These are contract-based arrangements that are individual in nature but, through aggregation, are able to benefit from some of the economies of scale that might previously have applied only to occupation schemes. This group includes stakeholder pensions (SHPs), group personal pensions (GPPs) and group self-invested personal pensions (SIPPs). These products cover the needs of the whole demographic spectrum of the working population in the UK but at the margins they compete with each other.

They also compete with defined contribution money purchase schemes - employers have a choice as to which they will offer or facilitate. From 2012, a new competitor - in the form of the National Pension Saving Scheme (NPSS, also known as ‘personal accounts’) - will enter the fray as a default option for employers who have no other scheme in place. Unless employees make a deliberate decision to opt out of this scheme, they will be automatically enrolled.

It seems that GPPs are under pressure from all sides - stakeholders and the NPSS on the one hand and group SIPPs (GSIPPs) and occupational arrangements on the other. Yet in the last 2-3 years the GPP market has flourished. This report focuses on the role of GPPs and trends in the market. It looks at the competitive environment and examines trends in the segmentation of the market between the different grouped arrangements available.

Issues in the Market

Key issues

Definitions

GPPs - an alternative to an occupational pension scheme

Significant benefits for employers

Advantages over group SHPs and GSIPPs

Market in Brief

Market size and development

Figure 1: New GPP business, 2001-07

Regulation driving development

Longevity - the burning issue

A competitive marketplace

Innovation focused on high-end GSIPPs

Market shares, companies and products

Little direct advertising activity

Employee benefit consultants increase their role

Consumer understanding limited

Mistrust still an issue

Internal Market Environment

Key points summary:

Regulation is the biggest influence on market development

Stimulating pension saving through simplification

Fair play

The advent of the NPSS

Free advice for consumers

More pensions legislation in 2008

Twice as many consumers with individual personal pensions rather than employer sponsored

Figure 2: Number of personal pension members, by type of scheme, 2006/07

The number of occupational pension schemes has declined rapidly since 2001

Figure 3: Number of private sector occupational pension schemes, by scheme size, 2001-05

The role of trustees

GPPs have become more competitive but less profitable

Take-up and persistency

Changing priorities

So why not stakeholder instead

And then along came GSIPP

Hybrid schemes may be the answer

GPPs the solution of choice in 2007

New threats on the horizon

Broader Market Environment

Key points summary:

Increasing longevity still the key market driver

Figure 4: Projected size of the UK population, by age band, 2007-44

Savings set to rise

Figure 5: Total PDI*, consumer expenditure and savings, 2003-12

Employment patterns will influence potential for pension saving

Competitive Context

Key points summary:

Pensions and pension substitutes

Non-pension options

Strengths and Weaknesses in the Market

Market Size and Forecast

Key points summary:

Trusteeship has driven GPP sales upwards

Resurgence in GPP business in force

Figure 6: GPPs in force, 2001-06

New GPP soars to record levels

Figure 7: New GPP business, 2001-07

Transfers currently account for three quarters of new single premiums

Figure 8: Single premium GPPs and transfers, 2006-07

Making good pension deficits

Figure 9: Contributions to private pension schemes - UK, 2001-06

New insurance-administered occupational business steady in 2007

Figure 10: New insurance-administered occupational pension business, 2001-06

Individual new business takes up the slack

Figure 11: Total new premiums, all individual pensions, 2002-07

GPPs to continue to benefit from restructuring of the pension sector

Figure 12: Forecast of new GPP business, 2002-12

Factors used in the forecast

Segment Performance

Key points summary:

Surge in transfers boosts single premium business

Figure 13: GPPs in force, by type of policy, 2001-06

Market Share

Key points summary:

AXA and Standard Life replace Lloyds TSB and Aegon at top of individual pensions market

Figure 14: Leading providers of individual pension products, 2005-06

Occupational pension performance is also important

Figure 15: Top 20 insurance companies in the occupational pensions market, by net premiums, 2004 and 2005

Companies and Products

Key points summary:

A fragmented sector in a concentrated market

Prudential

Legal & General

Standard Life

AXA

Norwich Union

Friends Provident

Brand Communication and Promotion

Key points summary:

A note about the data used in this section

Figure 16: Pensions adspend, by category, 2003-07

GPPs - little scope for direct advertising

Focus for company pensions is on the trade press

Figure 17: Company/occupational pension scheme adspend, by outlet, 2003-07

Provider and scheme ad spend falls after A-Day

Figure 18: Company/occupational pension scheme ad spend, by provider, 2003-07

Advertising likely to grow in the future

Channels to Market

Key points summary:

Independents - not just IFAs

Figure 19: GPP business by distribution channel, 2002-06

Advice potential in GPP is huge

One-to-one surgeries boost take-up

Long-term benefits would flow

The Consumer - Market Context and Pension Ownership

Key points summary:

Company size is key

Figure 20: Size of company worked for, September 2007

Type of pension offered influenced by size of company

Figure 21: Pension ownership, by size of company worked for, September 2007

Pension ownership

Figure 22: Pension ownership, September 2007

Pensions ownership male-focused and upmarket

Figure 23: Pension ownership, by gender and socio-economic group, September 2007

Pension ownership peaks among 35-54s

Figure 24: Pension ownership, by age and lifestage, September 2007

Part-time workers less likely to have pension arrangements

Figure 25: Pension ownership, by special group and working status, September 2007

The higher the income group the greater the likelihood of owning a pension

Figure 26: Pension ownership, by household income, September 2007

Personal pensions are mid-market products

Figure 27: Pension ownership, by housing tenure and newpaper readership, September 2007

Personal pension ownership higher in London than elsewhere

Figure 28: Pension ownership, by region, September 2007

All forms of pension ownership associated with attainment of higher education

Figure 29: Pension ownership, by terminal age of education, September 2007

The Consumer - Attitudes Towards Pensions

Key points summary:

Company contributions are a major influence on participation

Figure 30: Attitudes towards company pensions among scheme members, September 2007

Availability of a pension scheme may be of declining importance in employment decisions

Figure 31: Attitudes towards company pensions among scheme members, by gender and age, September 2007

Mid-market and pre-/no family plan holders have differentiated views

Figure 32: Attitudes towards company pensions among scheme members, by affluence and lifestage, September 2007

Third-age ABC1s see much change

Figure 33: Attitudes towards company pensions among scheme members, by special group and working status, September 2007

Higher-earning scheme members most likely to value pensions

Figure 34: Attitudes towards company pensions among scheme members, by income and housing tenure, September 2007

Broadsheet readers are ‘traditional’ scheme members

Figure 35: Attitudes towards company pensions among scheme members, by media usage, September 2007

Attitudes among non-members

Figure 36: Attitudes towards company pensions among non-members, September 2007

Men are much more negative about pension schemes than women

Figure 37: Attitudes towards company pensions among non-members, by gender and affluence, September 2007

Scepticism about company pensions felt by all age groups

Figure 38: Attitudes towards company pensions among non-members, by age and lifestage, September 2007

Older upmarket individuals less concerned about occupational schemes

Figure 39: Attitudes towards company pensions among non-members, by special group and working status, September 2007

Pensions mean more to more affluent consumers

Figure 40: Attitudes towards company pensions among non-members, by affluence and housing status, September 2007

Broadsheet readers less likely to trust company pensions

Figure 41: Attitudes towards company pensions among non-members, by Internet usage and newspaper readership, September 2007