Pensions: Trends and Opportunities. Contents Market Environment – Budget and Long Haul.

Pensions: Trends and Opportunities

Contents

Market Environment – Budget and Long Haul

Summary

Reasons for lack of growth

•The recession has led to high unemployment and squeezed disposable incomes, prompting a reduction in pension saving.

•Alternative sectors like equity release and buy-to-let have also been hit by funding issues and falling house prices.

•Pensions have a negative public image and are perceived by many to be risky, complicated and expensive.

Consumer behaviour

• Many people, particularly younger adults, are apathetic when it comes to retirement planning, which is seen as

being too far away to worry about.

• Affordability is a major constraint when it comes to saving in a pension, which is much more common amongst

ABs and high earners.

• The situation is not good – 13% of non-retirees think they will really struggle in retirement and 23% haven’t

really thought about it.

© 2010 Mintel International Group. All rights reserved. Confidential to

Mintel.

Influencing factors and market dynamics

• The UK has an ageing population, which will put increasing strain on the state pension.

• Consumer apathy towards retirement planning and a lack of adequate pension contribution are likely to force more people to either postpone, or work during their retirement, as well as consider alternative retirement solutions like equity release.

• The continued closure of final-salary schemes in the private sector has put added pressure on people’s retirement plans, as they are transferred on to less generous individual/defined-contribution schemes.

• The UK officially emerged from recession in Q4 2009, but the economy remains fragile and the budget deficit raises the prospect of public spending cuts and tax rises this year.

• PDI is the biggest driver of the retirement savings market, and although growth is likely to remain subdued in 2010, the long-term outlook is more positive, suggesting that retirement savings will increase.


Mintel.

Strengths and weaknesses…

Strengths

•Over the long-term, the UK population is growing in wealth and affluence…

•The government is desperately trying to incentivise and encourage people to

save for retirement.

•Tax relief on pension contributions is a major attraction for investors to save for

retirement this way.

•ISAs are very flexible and withdrawals are not taxed, with higher limits likely to

increase the appeal of ISAs as a means of saving for retirement.

•As a non-pension alternative, collectives enable investors to diversify and

spread risk.

•The recent rally in the stock market may encourage more people to invest in

equities, which generally deliver better returns over the long-term.

•Strong growth in house prices over the last decade has made property an

attractive investment for many people, especially BTL investors…

•Now that economic conditions are improving, it is likely that retirement savings

and pension contributions will be back on the list for many people.

Weaknesses

•…but the recession has forced many people to focus on paying off debt and cut

back on saving.

•People are apathetic when it comes to thinking about retirement, especially

young people.

•The majority of the population are not willing to take on any risk (ie stock

market-based investment).

•The continued closure of final salary schemes in the private sector and the

movement to less generous DC schemes has led to a fall in contribution levels.

•Pensions are tightly regulated, which limits the opportunity for product

development.

•Pensions are perceived to be complicated, risky and expensive, with many

consumers not trusting pension companies due to past mistakes.

•…although BTL mortgage availability has been severely reduced by the

recession, due to tighter lending criteria and a lack of available funding.

•Equity release firms have received a bad press in recent years for deliberately

undervaluing properties and failing to honor agreed habitation rights.


Mintel.

…opportunities and threats

Opportunities

•Possible reform to the CGT regime may make pensions more

attractive to investors…

•The launch of the NEST scheme in 2012 will increase pension

participation and should raise the profile of pensions and saving

for retirement…

•Due to a lack of adequate pension savings, in the future,

people are likely to be more dependent on their homes to

provide them with an income when they retire.

•The RDR aims to improve standards of advice and reduce

adviser bias, which may encourage more consumers into long-

term saving and investing…

•Increased longevity and a decline in employer pension

provision means people will have to save more funds for

retirement themselves in future, creating an opportunity for all

providers of retirement planning products.

Threats

•…but changes to tax relief on pension contributions for high

earners may discourage investment at the top-end.

•…but people may rely too much on the NEST, and there is also

the risk that employers may level down to this scheme from

existing, more generous ones.

•An ageing population and increased longevity has put more

strain on the state pension and means people will need to save

higher sums in order to retire.

•…but the proposals are likely to be difficult and costly to

implement, and are likely to push independent advice out of

reach for the most people.

•Given the difficulty for young people of getting onto the

property ladder, achieving this is a higher priority for many

individuals than saving for retirement.

•BTL mortgages look likely to be regulated in the future, which

may reduce availability and push up costs.


Mintel.

Less than two fifths of non-retired adults have a pension

Ownership of savings, investment and pension products, March

2010

Source: Ipsos Mori/Mintel

All adults Non-retired adults

% %

Cash-based savings 62 59

Savings account/cash ISA 59 56

National savings and investments products 19 16

Stockmarket-based investments 24 21

Stocks and shares ISA 17 15

Stockmarket-based investments held outside an ISA 9 8

Investment bond from a life company (eg with-profits bond) 6 5

Any pension 41 37

Final salary company pension scheme 24 20

Standard personal pension/stakeholder pension 15 14

Money-purchase company pension scheme 6 6

GPP 4 4

SIPP 1 2

Any other type of investment/asset 12 13

Own/family business 5 6

Buy-to-let property 3 4

Other investments/assets 7 7

None of these 23 27

Base: 1,924 adults aged 18+ and 1,464 adults aged 18+ who have not retired


Mintel.

ABs are more likely to have retirement savings

• The majority of UK consumers are ill prepared for retirement – less than two fifths of non-retired adults have a pension and only a fifth have stock market-based investments.

• Final-salary schemes are the most common type of pension product, owned by a fifth of non-retired adults.

• High earners, particularly those earning £40,000+, are considerably more likely to have a pension, with ownership levels at over two thirds of individuals.

• Almost a quarter of UK adults don’t own any savings, investment or pension products, while another quarter own just one product.

• ABs are likely to have a much wider range of options available to them when they retire, with over half owning three or more different savings, investment and pension products, compared with 30% of C1s, 18% of C2s and far fewer DEs.


Mintel.

Young people are apathetic towards retirement planning

Key points

• Around two fifths of non-retired adults plan to retire at the state pension age, with 17% planning to take early retirement and 12% expecting to work past this.

• High earners are considerably more likely to plan on retiring before reaching state pension age.

• The majority of non-retired people are fairly optimistic about their expected lifestyle during retirement, with a third thinking they should be able to get by and a fifth expecting a comfortable standard of living when they retire.

• Those who are worried about their standard of living in retirement are most likely to see working past the state retirement age as the solution to a savings shortfall.

Financial expectations during retirement, March 2010


13

33

21

23

7

3

0 5 10 15 20 25 30 35

I’ll really struggle in retirement

Things shouldn’t be too bad for me, I should beable to get by

Things should be good - I expect a comfortablestandard of living when I retire

I haven’t really thought about it

None of these

Don’t know

%

Base: 1,464 adults aged 18+ who have not already retired


Mintel.

Two fifths believe pensions are the best way to save

Key points

• Pensions are the most popular method of saving for retirement, with around two fifths of non-retired adults believing that pensions are the best way to save for retirement.

• Tax relief on pension contributions is valued more by ABs, while 35-54-year-olds are the most likely to think now is a good time to review their pension arrangements.

• People with non-stock market-based investments/assets are less likely to think pensions are the best way to save for retirement and are more likely to have recently stopped or reduced their pension contributions.

• Non-retired people who expect a comfortable standard of living when they retire are the most positive about pensions, particularly when it comes to tax relief on contributions.

Attitudes towards pensions, March 2010


% Pensions are the best way to save for retirement 38 I am concerned about the security of my pension 18 Tax relief on contributions is a key reason why I choose to save in a pension 11 I would not consider investing in a pension until the economy improves 10 I think now is a good time to review my pension arrangements 9 It’s a good time to invest in a pension 6 I’ve recently stopped paying into my pension or reduced my pension contributions 6 None of these 24 Don’t know 9

Base: 1,464 adults aged 18+ who have not already retired


Mintel.

Affordability is the biggest barrier to owning a pension

Key points

• Affordability is the main barrier to wider pension participation, with a quarter of non-pension holders saying they can’t afford to contribute to one, rising considerably amongst those earning less than £25,000.

• Some 15% of non-pension owners say they’ve never really thought about saving in a pension before, while 11% say retirement is too far away for them to worry about now – in both cases responses were much higher for younger adults.

• There are signs that a lack of trust is leading some people to avoid the pensions industry altogether.

Reasons for not having a pension, March 2010 % I can’t afford to 26 I never really considered it before 15 Retirement is just too far away for me to worry about now 11 I don’t trust pension companies 8 I want to, I’ve just never got around to it 6 It’s all just too confusing 5 I wouldn’t want to trust my retirement savings to the stock market 4 I don't like the idea of being forced to lock the money away until I retire 3 None of these/other reasons 33 Don’t know 8


Mintel.

Base: 1,140 adults aged 18+ who do not have a pension


It’s all about leaving a legacy versus living for today…

Base: 1,464 adults aged 18+ who have not retired

Attitudes towards retirement and retirement planning in general,

February 2010

Source: Ipsos MORI/Mintel

% I want to leave a legacy for my children when I die 25 I’d rather live for today than worry about what might or might not happen in 20 or 30 years time 24 My priority is getting onto/moving up the property ladder, not saving for retirement 15 I don’t like the thought of tying my retirement savings up in a pension 9 The state pension will be enough for me to get by on when I retire 8 I don’t see the need to save vast sums for retirement when my house will be worth so much by then 5 I think I’ll be quite dependent on my children/other relatives when I retire to help me get by 3 None of these 23 Don’t know 9


Mintel.

•There is a difference in opinion as to the types of attitudes that consumers have today concerning retirement

Everyday expenses are the main barrier to saving activity

Main barriers to saving and investing, December 2010

All adults Base: internet users aged 16+ 2,000 % I don’t have any money left after essential bills and expenses 42 Low interest rates 21 I am concentrating on repaying debts 19 I enjoy life and don’t want to make cutbacks 14 I prefer to keep any extra funds in my current account 13 Spending is just more fun 6 I don’t want my savings to restrict any state benefits I do/may receive 2 None of these 16

Source: GMI/Mintel

“Unfortunately my main priority is everyday living and my family such as paying

the mortgage bills etc. At this time of year especially saving is not high on the

list.”

– 45-54-year-old ABC1 female

“I think savings are very important if you can spare the money to put away but

my priorities are making sure all my bills are paid and everything I want to buy is

paid for.”

– 45-54-year-old C2DE female

© 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Consumer Trends

“For which of the following reasons do you think you will work beyond

the statutory retirement age?”% who name the following reasons

0% 10% 20% 30% 40% 50% 60% 70% 80%

For financial reasons

As a way to remain active

I worry that I will be bored if Istop working

Enjoy social contact

I enjoy working

Feel that I will still havesomething to contribute

Enjoy the routine of work

None of these

Source: Friends Provident/The Future Foundation/nVision

Base: 376 respondents aged 16+ not retired who say they will continue working after retirement age, GB, 2010

“How are you funding/do you intend to fund your retirement?”

0% 10% 20% 30% 40% 50% 60% 70%

State pension

Through savings

Through my employer pension

Through my personal pension

By continuing to work part-time

Through shares/investments

Through selling / down-sizing my house

By continuing to work full-time

I will release equity from my property

The new state pension scheme (National EmploymentSavings Trust)

Other

Don't know


Base: 1,005 respondents aged 16+, GB, 2010

Most consumers will depend on the state for their pensions

“The government will provide me with an adequate level

of pensions / retirement savings for my retirement”By gender, age and social grade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

To

tal

Ma

le

Fe

ma

le

16

-24

25

-34

35

-44

45

-54

55

-64

65

+

AB

C1

C2

DE

Agree strongly Agree Neither agree nor disagree Disagree Disagree strongly



However they do not feel that it will be adequate for their needs

“I find pensions schemes confusing”

By gender, age and social grade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%T

ota

l

Ma

le

Fe

ma

le

16

-24

25

-34

35

-44

45

-54

55

-64

65

+

AB

C1

C2

DE

Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree



And they are confusing

26803: Graphics from nVision for gabe

How confident are you of achieving the financial situation in your

retirement that you would like?Level of confidence, by gender, age and social grade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

To

tal

Ma

le

Fe

ma

le

45

-54

55

+

AB

C1

C2

DE

Don't Know

Not at allconfident

Not veryconfident

Quiteconfident

Veryconfident

Source: Friends Life/The Future Foundation/nVision

Base: 275 online respondents who have not yet reached retirement aged 45+, GB, 2011

26828: Graphics from nVision for gabe

Social contributions to funded pensions by the household sector

In £billions

0

10

20

30

40

50

60

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Employees

Employers

Source: ONS/nVision

Base: UK

Contribution dependency is shifting more onto employers

Advertising Climate

Bing Search Traffic KPIs

• Overall, pensions and investment KWs have decreased by 3% year on year for 2011

• Looking more specifically at pensions, there has been a similar amount of traffic year on year

• There has also been a slight decrease in investment specific KWs by 4% in 2011 year on year

1. Microsoft Advertising Intelligence Tool

Searc

h

Pensions KW Demographics and Daily Trends: Bing

1. Microsoft Advertising Intelligence Tool

Searc

h

• 163% more during the week than weekend

• There is a slight bias towards male searchers; traffic peak in the 50-64 age brackets

Opportunities

There is a build of Impressions and Actions during the early afternoon and a slight elevation in the early evening

There are two main peaks that occurs post-lunch before the end of the work day and at the end of the evening

Activity ramps up quickly during the

start of the work day and maintains levels

until evening

Targeting options could include the during and post-

lunch targeting to hit the break

browsers

Consumers are most active during the

evening

Searc

h

Pensions: Trends and Opportunities. Contents Market Environment – Budget and Long Haul.

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