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UK Retirement Planning Market 2018: Market Trends Report

  • ID: 4655338
  • Report
  • October 2018
  • Region: United Kingdom
  • 62 Pages
  • IRN Research

The retirement options open to consumers today have expanded since pension freedoms were introduced. But freedom of choice brings with it the freedom to make mistakes. Over one-third of adults aged 55-64 who are not retired have taken money from their pension pots and over one-quarter of adults in this age group who have withdrawn money in the past two years have taken the whole pot in cash: in other words, they will not be able to generate a pension income from these pots. Pension freedoms have been used especially heavily by individuals with small and medium-sized pension pots to release the cash within them, even if that means paying marginal rate tax on the 75% of the withdrawal with is subject to tax.

A real concern is that except with moving pots into drawdown, consumers often make decisions on their pension pots without getting professional, financial advice. There is a clear advice gap, especially when it comes to individuals taking all the pension fund as cash and the tendency to get advice seems to be declining.

The main purpose of this report is to review the UK pension decumulation market, i.e. how consumers are taking money from their pensions or how they are planning to/expect to take money from their pensions. The prime focus is on decumulation from defined contribution pensions and especially how the pension decumulation market has changed under the impact of a series of new legislation which is radically reshaping the types of pensions consumers have and how they are managing their pensions.

A sister publication UK Pension Market looks at the accumulation stage, i.e. how consumers are saving for their retirement. Clearly, there is overlap between these two, so factors impacting on accumulation will also be discussed in this report.

Note: Product cover images may vary from those shown

1.0 Executive Summary

1.1 DC Pension provision growing with pension freedoms radically changing decumulation plans
1.2 But that’s for the future, today many are uncertain about their retirement income
1.3 Because their retirement options are changing fast
1.4 But freedom of choice brings with it the freedom to make mistakes
1.5 And to act without professional advice
1.6 A need for more openness in the decumulation products market
1.7 The FCA and other official bodies are planning new safeguards
1.8 Annuities give way to drawdown and cash withdrawals
1.9 Around 100,000 DB pension transfers
1.10 Pension payments reach almost £250 billion
1.11 Almost 700,000 pension pots accessed by 2023

2.0 Introduction

2.1 Broad Definitions
2.2 Pension withdrawals DB occupational schemes
2.3 Pension withdrawals – DC pensions
2.4 Abbreviations

3.0 Market Structure

3.1 Multiple means to access pension money
3.2 The risk transfer market complicates the picture
3.3 Number of companies

4.0 Market Developments and Drivers

4.1 Decumulation is not an issue for around one-third of adults
4.2 Pensions must work harder
4.3 Which might explain why four-in-ten adults are not expecting a comfortable retirement
4.4 Despite retirement income rising
4.5 Flexibility is taking over from security as a pension goal
4.6 But does flexibility mean the freedom to sacrifice a pension income?
4.7 An issue which is of growing importance
4.8 Because, many adults don’t have very large pension pots
4.9 Concerns over pension transfers
4.10 Pension holders take advice in some circumstances
4.11 But not when they are taking cash
4.12 Which explains why many act in the dark
4.13 FCA tries to square the freedom, flexibility and advice circles
4.14 Default decumulation pathway proposed
4.15 Decumulation just one source of retirement income

5.0 The Key Players

5.1 Captive and open markets
5.2 Annuity providers
5.3 The largest bulk annuity firms
5.4 Drawdown providers
5.5 Company Profiles

6.0 Market Size and Trends

6.1 Over 200,000 decumulation products sold in 2017
6.2 But almost 600,000 pension pots accessed for the first time
6.3 When buying annuities, pension holders mainly select level only annuities
6.4 With over 2 million flexible payments taken
6.5 With the result that almost £20 billion in taxable payments have been withdrawn from pension pots
6.6 Around £20 billion transferred from DB pension schemes
6.7 Around £250 billion paid out every year
6.8 Pension risk transfer market expected to reach nearly £50 billion.

7.0 The Future

7.1 The Big Brexit unknown
7.2 DC workplace pensions will shape the future decumulation market
7.3 There is a greater need for consumer advice and guidance
7.4 New investment products are likely
7.5 Forecasts


List of Figures

Figure 1 The percentage of adults with a pension by type of pension, 2017
Figure 2 Employees enrolled into workplace pension schemes, 2012-2018
Figure 3 Percentage of the population of State Pension Age and older*, 2016-2041
Figure 4 Aggregate DB pension scheme deficits, 2011-2018
Figure 5 Expected retirement income of retirees each year
Figure 6 The percentage of adult who have decumulated a pension, 2017
Figure 7 The percentage of adult who have decumulated a DC pension, 2017
Figure 8 Current size of total defined contribution pension savings by age, 2017
Figure 9 The breakdown of pot size accessed for the first time by mean of access, Year ending March 2018
Figure 10 Decumulation product sales (% of volume) by advice and channel, 2007-2017
Figure 11 The % of pots accessed after advice was taken by how pension pots were used, 2015-2108
Figure 12 Pension holder understanding of the decumulation options they faced, 2017
Figure 13 The factors considered before taking a decumulation action, 2017
Figure 14 The number of pension pots accessed to buy an annuity, 2017-2018
Figure 15 The number of pension pots accessed for drawdown plans, 2017-2018
Figure 16 The largest players in the bulk annuity market (% of deal value), 2017
Figure 17 Examples of key drawdown plan providers, 2018
Figure 18 Just pension decumulation related sales, (year ending December) 2016-17
Figure 19 The number of decumulation products sold 2007-2017
Figure 20 The number of pension pots accessed by decumulation actions, 2015/16-2017/18
Figure 21 The types of annuities purchased when accessing pension pots, 2015-17
Figure 22 The number of flexible payments taken from DC pension funds, 2015-2018
Figure 23 Trends in flexible pension withdrawals, 2016-2018
Figure 24 Total expenditure on pensions* (£ billion), 2010-2018
Figure 25 The risk transfer market (£ billion), 2010-2018
Figure 26 Estimated number of pension pots accessed for the first time, 2017-2023

Note: Product cover images may vary from those shown