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By 2035, the pensionable population is projected to be 15.6 million, accounting for 21.3% of the total population. The largest increase of all the age ranges will be in the over-85s category, which is set to see an increase of 115% between 2015 and 2035.
Those of 85 and over are entering what has been deemed the 'Fourth Age', with the Third Age having begun at retirement and lasting to approximately 84. Retirement planning, for those of the population who have planned for retirement — an ever decreasing proportion — is generally focused on the 'Third Age', when retirees are still able to be relatively active and independent. Pension planning as it stands tends not to focus on providing the enhanced levels of income necessary as individuals enter the 'Fourth Age' and may begin to have long-term care requirements.
With this in mind, it is hardly surprising that the Government's expenditure on the various elements of the State Pension has grown by 28.9% between the tax year ending 2008 and the tax year ending 2012. By the tax year ending 2058, it is forecast that the Government will be spending 8.3% of gross domestic product (GDP) on benefits directed at pensioners, with the State Pension making up a considerable proportion of this. In February 2012, there were 12.7 million people receiving the State Pension, up from 11.8 million in February 2007.
The ageing population comes alongside an environment where the average family simply cannot afford to save. The proportion of households without any savings increased between 2007/2008 and 2010/2011 from 27% to 32%, with the continued poor economic performance being likely to blame. The current low interest rate environment is also discouraging saving, as returns received are, for all intents and purposes, negligible. 67.5% of the population said that they could not afford to save more than they currently did, according to Key Note's exclusive market research conducted in October 2012. Only 27.4% said that workers on the average wage can afford to save enough for a comfortable retirement.
The burden is, therefore, increasingly falling on the Government to foot the bill for workers' retirement. In 2011, benefit income made up 34.4% of the weekly income of pensioner couples and 58.8% of weekly income for single pensioners.
As a result of this growing burden, the Government has made a number of changes to UK pensions policy in the UK, including increasing the retirement age and introducing automatic enrolment into workplace pension schemes, in an effort to try to alleviate the mounting pressure on the state. However, at the same time the Government has also reduced the annual limit for contributions to pensions to minimise tax revenue lost through pension contributions.
There are numerous difficulties facing the pensions market in the UK at present. Again according to Key Note's consumer research, 59.6% of the public said that pensions confused them, and 45.4% said that the future was too unpredictable to make saving for retirement worthwhile.
The average household in the UK was contributing just £19.70 a week to life assurance and pensions in 2010, which is not a sum sufficient to build a suitable retirement income. The number of people who are contributing inadequately are outnumbered by those who are not contributing at all.
The economic gloom the UK has experienced since the recession has resulted in an era of low overall returns for pension funds. Government bonds, one of the key investments pension funds are made up of, have been severely underperforming of late due to the Bank of England (BoE) using quantitative easing (QE) to try and infuse the economy with badly needed liquidity. At the same time, high inflation has been eroding incomes in real terms for pensioners and the value of funds held in savings accounts for savers.
Many individuals appear to have lost confidence in pension saving because of the ongoing abandonment of defined-benefit (DB) schemes, volatile fund values, and the wave of demutualisations during the early years of the previous decade, coupled with the failure of Equitable Life, the world's oldest life assurer. This has resulted in persistent under-saving and a general ennui on behalf of the public to make savings towards their future.
The UK's economy began to grow again in the third quarter of 2012, struggling out of the longest double-dip recession since the Second World War. However, the UK is far from out of the woods yet and must face a world vastly changed by the recession — in March 2012, Brazil overtook the UK as the world's sixth-largest economy, for instance.
The future of pensions provision in the UK is hard to discern. The sheer number of legislative changes regarding pensions at the time of writing is likely to vastly change the way pensions are sold in the UK in the future, but whether this will be sufficient to provide a secure retirement income for the UK's rapidly ageing population still remains to be seen.
Table of ContentsForeword Executive Summary Introduction
ECONOMIC TRENDSPopulationLife ExpectancyGOVERNMENT SPENDING ON PENSIONERSNUMBER OF PEOPLE SAVING FOR PRIVATE OR OCCUPATIONAL PENSIONSRATE OF SAVINGHow Much Can People Afford to Save?Pension InflowsPENSIONERS' INCOMESDISTRIBUTIONIndividual PensionsOccupational PensionsRetirement Income ProductsCOMPETITIVE STRUCTUREPENSIONS REFORMAutomatic EnrolmentPensions ActFinance ActAge DiscriminationRETAIL DISTRIBUTION REVIEWSOLVENCY II
The State Pension
INTRODUCTIONSTATE PENSION AND OTHER GOVERNMENT PROVISIONSBasic State PensionNon-Contributory State Pension and BenefitsSecond State PensionsMeans TestingSTATE PENSION REFORMThe End of Contracting OutChanges to S2P PaymentsThe Budget: A Flat-Rate Pension?Autumn Statement
INTRODUCTIONAllowance LimitsMARKET SIZEIncome from Personal Pensions
BACKGROUNDDefined Benefit Versus Defined ContributionMARKET SIZEBy Benefit StructurePrivate-Sector ContributionsIncome from Occupational PensionsTHE PENSION PROTECTION FUND
BACKGROUNDEU Gender DirectiveINCOME OPTIONSSecured IncomeIncome Drawdown: Flexible Versus CappedANNUITY CHOICESStandard AnnuityEnhanced and Impaired-Life AnnuitiesInvestment-Linked AnnuityMARKET SIZEBy Size of FundBy Age
Preparing for the Fourth Age
HEALTHY LIFE EXPECTANCYDECLINE OF INSURANCE TO PAY FOR CARE
BACKGROUNDMAIN MEDIA ADVERTISING EXPENDITURE
An International Perspective
HIGH DEPENDENCY RATIOS IN EUROPENUMBER OF PENSION FUNDSIn Selected OECD CountriesIn Selected Non-OECD CountriesDEFINED BENEFIT OR DEFINED CONTRIBUTION?INVESTMENT IN PENSION FUNDSOECD CountriesSelected Non-OECD CountriesEXPENDITURE: PUBLIC VS PRIVATE
POLITICALThe BudgetECONOMICQuantitative EasingUK DeficitSOCIALLongevityThe Jobs MarketTECHNOLOGICAL
INTRODUCTIONANALYSIS OF RESULTSS1: "Recent Government Policy, Which Will See Pensioners Lose the Higher Personal Income Tax Allowance They Were Previously Entitled To and Could Cause Pensioners To Lose Money in Taxes, Is Unfair"S2: "I Cannot Afford to Save More Than I Do Currently"S3: "Automatic Enrolment in Workplace Pension Schemes Will Benefit UK Pensions Provision"S4: "Pensions Confuse Me"S5: "Low Interest Rates Discourage Me From Saving"S6: "People Working Longer to Make Sufficient Provisions for Retirement Are a Contributing Factor to the Current Level of Youth Unemployment"S7: "It Is Right to Increase the State Pension Age Because People Are Living Longer and the UK Is in Debt"S8: "The Future Is Too Unpredictable to Make Retirement Saving Worthwhile"S9: "I Am Certain I Will Have Sufficient Income in My Retirement to Live Comfortably"S10: "Automatic Enrolment in Workplace Pension Schemes Will Benefit Me"S11: "Family Members Should Take a Greater Proportion of the Financial Burden of Caring for the Old and the Infirm"S12: "The Complexity of UK Pensions Policy Deters Me From Contributing to a Pension"S13: "I Think the Retirement Age for Women Should Be Lower Than That of Men"S14: "I Have Not Currently Planned Any Way to Fund My Retirement"S15: "Workers on the Average Wage Can Afford to Save Enough for a Comfortable Retirement"S16: "I Have Made Financial Provisions (i.e. by Purchasing Long-Term Care Insurance) for the Possibility That I Will Need Residential Care in My Old Age"S17: "I Will Rely on the Release of Equity in My Property to Fund My Retirement"
INTRODUCTIONLess ChoiceAEGONCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsAVIVA PLCCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsAXA GROUPCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsBARCLAYSCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsCANADA LIFECorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsEQUITABLE LIFECorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsFRIENDS LIFECorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsHSBCCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsJUST RETIREMENT GROUPCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsKEY RETIREMENT SOLUTIONSCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsLEGAL and GENERALCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsLV= (LIVERPOOL VICTORIA)Corporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsLLOYDS BANKING GROUPCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsNATIONAL FARMERS UNION MUTUALCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsPHOENIX GROUP HOLDINGSCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsPRUDENTIALCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsREASSURECorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsROYAL LONDON MUTUALCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsSTANDARD LIFECorporate StrategyProduct and Brand DevelopmentProfitabilityFuture DevelopmentsZURICH FINANCIAL SERVICES GROUPCorporate StrategyProduct and Brand DevelopmentProfitabilityFuture Developments
ECONOMIC FORECASTSPopulationPROJECTED GOVERNMENT EXPENDITURE ON STATE PENSION AND RELATED BENEFITSThe Future of Pensioners' Benefits: Means Testing?THE FUTURE OF OCCUPATIONAL PENSIONSAutomatic EnrolmentANNUITY RATESALTERNATE RETIREMENT INCOMESCONCLUSION
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Understanding Consumer Survey Data
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