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United Kingdom (UK) Pensions Market Analysis and Forecast to 2025 – Analysing Market by Product and COVID-19 Impact on Consumers’ Attitudes and Behaviours

The COVID-19 pandemic caused the UK pensions market to shrink drastically, falling by 21.9% to £12.8bn annual premium equivalent (APE) in 2020. Although all types of pensions contracted, work-based pensions (which account for the largest share of the total) saw the least severe decline (-15.6%). Workplace pension participation leveled off, while the government’s furlough scheme compromised growth, with contributions being based on an employee’s reduced salary rather than their full wage. The pensions market is projected to grow to £19.2bn APE by 2025, representing a compound annual growth rate of 8.4%. Growth will be slower in the early years of the forecast period as ongoing restrictions will continue to impact both the way businesses operate and employment rates in the short term.

This report examines how the pensions market is changing. It explores how consumers’ attitudes and behaviors towards long-term saving, planning for retirement, and accessing private pensions have been impacted as a result of the COVID-19 pandemic.

The report also provides current and historical data on the size of the market by product type, covering individual pensions, workplace pensions, and trust-based pensions. Data on annuities and income drawdowns is also provided. The size of the pensions market has been forecast to 2025.

Scope

– Single individuals need to supplement the state pension by more than £11,500 per annum to achieve a reasonable lifestyle in retirement. Longer life expectancies mean that women need larger pension pots than men for the same retirement income, highlighting the gender gap in pensions.

– Since the outbreak of COVID-19, confidence that pensions are enough to last throughout retirement has eroded for 23.4% of non-retired individuals. The most negative sentiment is among unemployed and furloughed individuals.

– 14.7% of over 55s cited that they had withdrawn money from their private pensions. More than half of all pension plans are emptied at the first time of access.

Reasons to buy

– Examine the size of the pensions market

– Discover how consumers save towards retirement

– Learn how individuals access their private pensions for the first time

– Understand trends in income drawdowns and annuities

– Explore the gender gap in pensions

– Understand the impact of COVID-19 on the market, sentiment, and customer behavior

– Understand the impact of the furlough scheme

Companies mentioned

Aviva

Prudential

Lloyds Banking Group

Phoenix Group

Zurich Financial Services

BlackRock

British Airways

Fidelity

LV=

Quilter

Rothesay Life

Royal London Mutual

Pension Insurance Corporation (PIC)

Just Group

Canada Life

ReAssure

Legal & General

Guardian

HSBC Master Trust

Aegon Master Trust

Scottish Widows Master Trust

The People’s Pension

National Employment Savings Trust (NEST)

Uber

Table of Contents

Table of Contents

1. Executive Summary

1.1 Market overview

1.2 Key findings

1.3 Critical success factors

2. The State Pension and Retirement Planning

2.1 Most adults retire once they can access the state pension

2.2 The state pension is insufficient to live comfortably on

2.3 COVID-19 and Brexit will impact retirement plans

3. Private Pensions: Market Size and Players

3.1 New pension contributions plummeted amid COVID-19

3.2 BlackRock and Rothesay Life lead the market for pensions

3.3 Other market developments

4. Saving for Retirement

4.1 More adults save into a workplace pension because of AE

4.2 Pension pot characteristics and saving attitudes

5. Pension Decumulation

5.1 Many over 55s withdrawing from their pensions are putting at risk their long-term savings

5.2 Accessing pensions for the first time

5.3 Income drawdowns and annuities

6. Lifestyle in Retirement

6.1 Retirees have confidence in their retirement funds

7. Appendix

7.1 Abbreviations and acronyms

7.2 Definitions

7.3 Methodology

7.4 Secondary sources

7.5 Further reading

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List of Tables

List of Tables

Table 1: Trust-based APE by product type (£m), 2016-20

Table 2: Individual APE by product type (£m), 2016-20

Table 3: Top 10 UK individual and workplace pension providers by GWP, 2019

Table 4: Top 10 UK trust-based pension providers by GWP, 2019

Table 5: AE thresholds, 2019-20 to 2021-22

Table 6: Total minimum contributions rose to 8% of qualifying earnings in April 2019

Table 7: Example of average retirement income through annuities, May 2019 to May 2021

List of Figures

List of Figures

Figure 1: The SPA will rise to 68 by 2039

Figure 2: Most individuals retire at around the SPA

Figure 3: The state pension pay of women is lower on average than for men

Figure 4: Pensioner poverty has increased in recent years and is worst among women

Figure 5: Non-retired adults place less importance on the state pension than those currently in retirement

Figure 6: Most individuals desire a retirement income of between £1,000 and £1,999 per month

Figure 7: Men want higher monthly income in retirement than women

Figure 8: Single individuals need at least £10,200 per annum in retirement to cover expenses

Figure 9: Women need larger pension pots than men to have the same income at retirement owing to their longer life expectancies

Figure 10: COVID-19 has worsened income disparities as some are better off financially while others have struggled

Figure 11: Some individuals have delayed retirement as COVID-19 caused stock markets to crash

Figure 12: APE for all pension types shrank in 2020

Figure 13: The pensions market is forecast to grow to 2025

Figure 14: Growth in workplace pension participation leveled off in 2020

Figure 15: The majority of younger adults have started a workplace pension because of AE

Figure 16: Workplace pension participation is extremely low among 16-21 year olds

Figure 17: Most individuals would never opt out of their workplace pension regardless of the contribution rate

Figure 18: There has been a shift away from DB towards DC schemes

Figure 19: Many adults consolidate their pension pots once they reach the SPA

Figure 20: 60.6% of individuals contribute at least 6% of their income to pensions

Figure 21: 78.3% of furloughed workers made contributions towards their pension above the minimum rate

Figure 22: Most employers make contributions at the minimum required level

Figure 23: A fifth of individuals hit financially by COVID-19 have reduced their contributions

Figure 24: Full-time and furloughed employees were the most likely to increase their contributions

Figure 25: Confidence as to how long pensions will last has somewhat eroded as a result of COVID-19

Figure 26: Only a small proportion of savers consciously pick the investments in their pension plan

Figure 27: Individuals lose track of how much their pension is worth over their working life

Figure 28: A significant proportion of over 55s have pension pots worth in excess of £100,000

Figure 29: The pension pots of women approaching the SPA are smaller than those of men of the same age

Figure 30: Over 55s have flexibility in terms of drawing pension income

Figure 31: Over 55s withdrawing from their pensions will commonly place the funds into a savings account

Figure 32: The main reason driving some to defer claiming a pension is so that it pays more at a later date

Figure 33: Over half of all pension plans are fully withdrawn when accessed for the first time

Figure 34: Small pension pots are generally fully withdrawn at the first time of access

Figure 35: Income drawdowns and annuity sales have fallen over COVID-19 economic uncertainty

Figure 36: The value of taxable flexible payments from pensions was higher in Q1 2021 than in the same period of 2020

Figure 37: Over nine in 10 individuals say their lifestyle in retirement is as expected or better

Figure 38: The majority of retirees feel confident that their pension/savings will last their entire lifetime

Figure 39: Confidence surrounding pensions/savings has remained broadly unchanged among retirees despite COVID-19

Figure 40: Half of retirees review their budgets once a month

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