Commentators have long anticipated changes to the retirement market, with the effect of the so-called “baby boomer” generation reaching retirement age having a profound effect on both the volume of sales and the types of products being offered by providers. And now, research by MGM Advantage has confirmed that, not only has the market changed substantially in recent years, but it also looks set to change further in the future, generating both opportunities and responsibilities for the industry as a whole.
“Our analysis shows that the market is getting bigger and looks set to peak, with an average of 2208 people turning 65 each day this year,” explains sales and marketing director Aston Goodey. “While in 2004, the advised market had sales totalling £9bn, in 2011 that figure was closer to £12.5bn and will obviously be higher this year.
“For those reaching retirement who are lucky enough to have an adviser, the shape of the market has changed considerably. In 2004, 62.5 per cent opted for a conventional annuity, while 10.2 per cent were recommended to go for an enhanced annuity and the remainder went into income drawdown. Last year, it was more evenly split, with 41 per cent in conventional annuities, 42 per cent in enhanced and the rest in drawdown.”
Indeed, MGM Advantage anticipates the enhanced market will gather even more pace, with 60-70 per cent of the market going into those kinds of products. It believes part of that shift is down to the increase in the number of players in that area of the market and the way in which they have been promoting those products, as well as an improvement in the infrastructure for getting quotes, which MGM Advantage intends to improve in its own proposition this year, offering an online facility to get a variety of provider quotes from just one form.
“I think fairly soon, as more and more people go for enhanced annuities, there will be a shift to it all being seen as one annuity, without the differentiation between conventional and enhanced. The conditions of normal form filling will be able to assess things like smoking and health issues before an annuity rate is given,” Mr Goodey states.
However, an area Mr Goodey remains concerned with is the low number of people who do not have the benefits of professional financial advice taking up an enhanced annuity. In fact, only 2 per cent of people without an adviser get an enhanced annuity.
“That figure clearly shows the value having an adviser has,” he says. “The problem is a lot of people, especially those with smaller retirement pots, do not have access to that type of advice. We, as an industry, need to look at trying to get down below the adviser level to make sure people know about enhanced annuities. There are lots of opportunities in that area.”
Another trend MGM Advantage has identified is the fall in the number of individuals taking up income drawdown, which has long been the second biggest market area outside conventional annuities. In 2004, 22.6 per cent of total sales in the advised market were dedicated to income drawdown products, while in 2011 that figure had more or less halved to 10.7 per cent. For Mr Goodey this trend is unsurprising as he believes income drawdown is suffering from the effects of a “perfect storm”.