The Spence Johnson Blog

By , 15 October 2014Market Intelligence | Retirement Income

UK Retirement Income: opportunities in a transformed market

Although the pension freedoms announced in the March 2014 Budget did little to affect our estimates of the overall growth of Retirement Income market (we expect individual pensions and savings will grow at an annual rate of 5% from £646bn in 2013 to £1trn by 2023), our latest Retirement Income Market Intelligence report outlines a world in which the opportunity set, especially for investment suppliers, will alter significantly.

Drawing on our latest report we have outlined below a few of the key opportunities and challenges we believe investment suppliers will be presented with as retirement income market evolves over the next few years:


  1. Strong growth in fund-backed retirement income – Overall we predict a sharp growth of 15% a year of fund-based pensions in drawdown, while in the mid-market pots of £30k-£250k, where the pension freedoms are likely to lead to a sharp increase in those selecting drawdown over annuities, we predict growth will accelerate to 21% per annum.

  2. Partnerships on to-and-thru and guaranteed unit-linked – There will be an increased opportunity to partner with insurers both in their role as DC contract-based providers as they look for to-and-thru alternatives to shore up dwindling annuity sales and in their role as providers of guarantees on ‘third way’ unit-linked retirement income products.

  3. Increased demand for at-retirement ‘bridging’ products – As people increasingly postpone retirement or remain invested in their pension scheme and use small amounts to supplement income from other sources (such as part-time work), there will be an increasing opportunity for suppliers of ‘bridging’ products offering improved outcomes to those who remain invested in their scheme past traditional retirement ages.


  1. Raising retiree awareness of current and emerging retirement income options is essential for success - the product suite to meet the emerging retirement income needs is still very much ‘in development’. Meanwhile client awareness of even their existing product options is very low, and likely to only be partially improved by the ‘guidance guarantee’. As new products emerge high levels of client engagement and well-designed product communication strategies will be central to ensuring retirees feel empowered to take advantage of them.

  2. Annuity providers will fight-back - faced with a sharp downturn in potential sales, annuity providers have not stood still. Investment suppliers should therefore be prepared for a new suite of insurance-led, unfunded annuity products (such variable income, deferred and ‘with care’ annuities) that will challenge fund-backed solutions by offering similar levels of income flexibly designed to be better suited to meeting retirees’ needs.

  3. Engagement with ‘new advice’ models will be key to achieving distribution success – The rise of D2C and new advice models makes it essential for investment suppliers to engage with platforms and advisers as they build new methods of distribution to bring investment-backed products to the retirement income market. 

By , 13 January 2014Market Intelligence | Retirement Income

Developing ‘Third Way’ Retirement Income Solutions: Opportunities and Challenges

As defined benefit schemes close and the state pension age is pushed back, private personal pensions are the fastest growing source of retirement income for the over 65s in the UK. Although securing a guaranteed income in retirement often ranks as their top priority, surveys have shown retirees have a wide range of requirements from their retirement income solutions.

The ability to pass on remaining funds as an inheritance; the potential for income to rise in the future; and the ability to access money in an emergency all rank highly in their list of preferences. Despite this traditional annuity and drawdown products continue to struggle to meet retirees’ needs, driving the demand for new ‘third way’ solutions.

These third way products include invested annuities, unit-linked guaranteed products and retirement target date products, and each offers its own blend of the security offered by traditional annuities with the flexibility of traditional drawdown solutions.

Products such as retirement target date funds suggest investment suppliers are developing an increasingly nuanced view of the retirement income market as they recognise younger retirees are coming to regard retirement less as a ‘cliff-edge’ and more as a phased process (during which they may continue to work part time). In short these products allow retirees to postpone acquiring income security in return for continued exposure to growth in the early stages of their retirement.

The diversity of third way offerings points both to the difficulty in designing a ‘one-size-fits-all’ retirement income solution and the continuing opportunity for new entrants to develop innovative approaches to meet the growing retiree demand. Advisors have not stood still in developing their own responses to this demand, offering blended solutions that attempt to draw together fund products with a phased approach to annuity purchase.

Although current third way options have gone some way towards meeting the competing needs of retirees, the requirement for continued product development remains. Most third way products and blended solutions remain out of reach of the mass market. In addition current solutions have been accused of opaque charging structures and levels of complexity that make them hard to explain to prospective retirees.

The greatest challenge facing providers of retirement income solutions, however, remains one of delivering sufficient levels of flexibility while still affording the income certainty that tops retirees’ current lists of requirements.

Delivering these solutions is likely to require close co-operation between investment suppliers and insurance providers to produce new third way solutions that not only meet a greater range of retiree needs, but do so in a simpler and more cost effective manner