Pensions: Trends and Opportunities

1. Pensions: Trends and Opportunities

2. Contents

3. Market Environment – Budget and Long Haul

4. 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.

5. 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. © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

6. 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. © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

7. …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. © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

8. Less than two fifths of non-retired adults have a pension Ownership of savings, investment and pension products, March 2010 Base: 1,924 adults aged 18+ and 1,464 adults aged 18+ who have not retired Source: Ipsos Mori/Mintel © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

9. 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. © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

10. 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 Base: 1,464 adults aged 18+ who have not already retired Source: Ipsos Mori/Mintel © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

11. 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 Base: 1,464 adults aged 18+ who have not already retired Source: Ipsos Mori/Mintel © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

12. Affordability is the biggest barrier to owning a pension Reasons for not having a pension, March 2010 • 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. Base: 1,140 adults aged 18+ who do not have a pension Source: Ipsos Mori/Mintel • © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

13. It’s all about leaving a legacy versus living for today… Attitudes towards retirement and retirement planning in general, February 2010 Base: 1,464 adults aged 18+ who have not retired Source: Ipsos MORI/Mintel • There is a difference in opinion as to the types of attitudes that consumers have today concerning retirement © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

14. Everyday expenses are the main barrier to saving activity Main barriers to saving and investing, December 2010 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.

15. Consumer Trends

16. “For which of the following reasons do you think you will work beyond the statutory retirement age?” % who name the following reasons 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

17. “How are you funding/do you intend to fund your retirement?” Most consumers will depend on the state for their pensions Source: Friends Provident/The Future Foundation/nVision Base: 1,005 respondents aged 16+, GB, 2010

18. “The government will provide me with an adequate level of pensions / retirement savings for my retirement” By gender, age and social grade However they do not feel that it will be adequate for their needs Source: Friends Provident/The Future Foundation/nVision Base: 1,005 respondents aged 16+, GB, 2010

19. “I find pensions schemes confusing” By gender, age and social grade And they are confusing Source: Friends Provident/The Future Foundation/nVision Base: 1,005 respondents aged 16+, GB, 2010

20. 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 Source: Friends Life/The Future Foundation/nVision Base: 275 online respondents who have not yet reached retirement aged 45+, GB, 2011 26803: Graphics from nVision for gabe

21. Social contributions to funded pensions by the household sector In £billions Contribution dependency is shifting more onto employers Source: ONS/nVision Base: UK 26828: Graphics from nVision for gabe

22. Advertising Climate

23. Bing Search Traffic KPIs Search • 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 Microsoft Advertising Intelligence Tool

24. Pensions KW Demographics and Daily Trends: Bing Search • 163% more during the week than weekend • There is a slight bias towards male searchers; traffic peak in the 50-64 age brackets Microsoft Advertising Intelligence Tool

25. Opportunities Search 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 • Targeting options could include the during and post-lunch targeting to hit the break browsers • Activity ramps up quickly during the start of the work day and maintains levels until evening • Consumers are most active during the evening