Rethinking retirement

in the UK
Contents

1. Foreword 4
2. Executive summary 6
3. Introduction 8
4. Aviva’s proposals
The Open Market Option 10
Creating an annuity market fit for the future 12
Addressing customer needs 14
5. Conclusion 16
6. Glossary 17
Foreword
1.1 The face of retirement is changing. People are living longer
on less money.
1.2 The current retirement framework dates back to the time
when the majority of people had a defined benefit company
pension scheme, giving them a security of income which is
lacking for today’s retirees.
1.3 Future pensioners face a very different retirement landscape.
Few have a final salary pension scheme from their employers
and many will have a number of small pension pots from
different employers accumulated over their career. This fractured
retirement planning means people face a retirement income
often significantly smaller than their current wage, leading
to more reliance on the state and growing levels of debt and
poverty. Others will find they cannot afford to retire at their
chosen age and are forced to work for a number of extra years
to build up their pension pot or perhaps pay off debts.
4 Aviva Real Retirement Report
The market needs to evolve to
meet the needs of the current
generation of retirees, who are
facing the twin issues of increased
longevity and reduced income.
1.4 Bluntly, the products and services available to savers as
they approach and enter their retirement are failing current
pensioners and this will only get worse as greater numbers of
people retire each year. The market needs to evolve to meet
the needs of the current generation of retirees, who are facing
the twin issues of increased longevity and reduced income.
1.5 The recent publication of the Government’s Green Paper
on moving to a simpler, flat rate state pension is a great step
in helping people understand what benefits they’ll be entitled
to when they approach retirement. But it is remains hugely
important that customers also have access to better information
and easier ways to maximise their pension pot.
1.6 Customers need the industry to provide simpler ways
to shop around for a retirement income, lower costs to
amalgamate their small pension funds into one and holistic
advice on all the financial issues surrounding retirement.
1.7 Aviva is uniquely placed to kick-start the debate and
lead the change. We are the only insurance company in the
UK that is actively engaged in all areas of retirement saving,
income and planning by offering consumers ways to:
● Save for retirement through personal and group pensions
and investments.
● Manage their finances into retirement with a full suite of
retirement products – the At Retirement range.
● Access a range of retirement advice services.
Customers need the industry
to provide simpler ways to shop
around for a retirement income
1.8 Aviva has long campaigned to help customers understand
they can shop around to buy a retirement income – what
insurers call taking the ‘open market option’ - and to make
it clearer that they do not have to take an annuity from the
company they have saved with. We have run multi-million pound
marketing campaigns in recent years urging retirees to shop
around and invested in improving our services to help customers
navigate the complex decisions they have to make at retirement.
1.9 We have also championed the needs of pre- and post-
retirees though our Real Retirement Reports, which for the past
year have tracked the attitudes and financial concerns of people
approaching and in retirement. We have used these findings
to add to the national debate on retirement to ensure any new
services or initiatives are built around the needs of the very
people who will use them.
1.10 We are also seeking to stimulate debate and action that
encourages people to save enough throughout their working
lives to meet their aspirations in retirement. Our Mind the
Gap study, published in autumn 2010, called attention to
the savings gap and suggested actions governments could
take to help address it. Our Future Prosperity Panel has
brought together thinkers across the world to build a greater
understanding of the financial issues affecting our customers,
and what can be done to make a difference in the future.
1.11 Now the debate needs to translate into actions. Rethinking
Retirement in the UK sets out a series of measures we believe
are necessary to address the issues facing the market today so
it can properly serve the needs of tomorrow’s retirees. It is up
to all of us - the retirement industry, government, regulators,
employers and individuals alike - to act on these solutions
now to help provide prosperity and peace of mind for future
generations of retirees.

Andrew Moss
Group Chief Executive, Aviva

Aviva has long campaigned to help

customers understand they can shop
around to buy a retirement income

Aviva Real Retirement Report 5

Executive summary

2.1 The UK is facing a significant population change with

increasing numbers of older people coming up to retirement.
But the current retirement market is already failing today’s
generation of retirees and will continue to do so with serious
consequences for the retirement income and security of future
generations of older people. To put this in to context, 385,000
people purchased annuities in 2010 alone and figures indicate
that only 32% of customers bought annuities from a different
company to the one they saved with.

2.2 There are inherent weaknesses in the current system,

such as the potentially high cost of moving between pension
providers and the fact that some companies choose not to
make their annuity rates publicly available for comparison. These
weaknesses have shaped today’s retirement environment, where
shopping around for the best deal isn’t the universal action it
should be for customers.

2.3 However, there have been a number of Government

initiatives aimed at meeting the current and future needs of
retirees. The removal of compulsory annuitisation at age 75 has
given a small proportion of retirees more freedom to use their
savings and assets in retirement to best match their income
needs. From October 2012 onwards, automatic enrolment into
pensions will be introduced and the new National Employment
Savings Trust (NEST) could offer pensions to as many as six
million people. And the Government’s Green Paper on moving
to a simpler, flat rate state pension in the future is a great step
in helping people understand what they’ll be entitled to when
they approach retirement.

2.4 To meet the needs of tomorrow’s customers, Aviva

believes that the market must have full transparency, making
it easy for customers to compare best rates and giving them
access to the right annuity for their circumstances. To achieve
this, it is crucial to ensure customers can easily get the right
type of advice to suit their needs and can automatically
access to enhanced rates through the introduction of fully
underwritten annuities.

There are inherent weaknesses in the current system, such as the

potentially high cost of switching and the fact that some providers
choose not to make their annuity rates publicly available for comparison.

6 Aviva Real Retirement Report


2.5 Rethinking Retirement in the UK sets out a number of key
changes Aviva believes are vital to make it easier for customers
to understand their financial options as they approach
retirement and help them choose the retirement income they
deserve. We believe that the required changes are:
Proposal 1: Requiring all annuity providers
to publish annuity rates to make it easier for
customers to make comparisons.
2.6 UK annuity providers are not currently required to publish
the annuity rates they offer to their customers when they reach
pension age. Many companies already do so – especially those
that are actively marketing their annuity products to new, or
‘external’, customers – but there is still a secretive significant
minority allowing no comparisons. Aviva wants the publication
of annuity rates to be made compulsory - no matter whether
the provider is offering annuities to the whole, ‘open’ market,
or takes a ‘closed’ approach by only serving the customers that
have saved for a pension with them. Aviva also proposes that
examples of the best market rates are highlighted to soon-to-
be retirees when the annuity they are being offered by their
pension company is 10% less than the best rates available in
the market for the same type of product.
Proposal 2: Including medical questionnaires
in maturity packs to drive access to automatic
underwriting in annuities.
2.7 One of the most noticeable changes in the retirement
market over the past few years has been the rise in the number
of enhanced or impaired life annuities. Aviva proposes that
basic medical questions are included in all customers’ pension
maturity packs to ensure those who qualify for an enhanced or
impaired annuity are more easily identified by the industry so
firms can automatically offer them a tailored annuity.
Aviva believes it should be as simple
as possible for every customer
to choose the level of support
they need when making financial
decisions about their retirement.
Proposal 3: Reducing the costs of
switching providers
2.8 When the FSA’s Retail Distribution Review is implemented
in 2012, the way customers access advice and guidance about
their annuity is likely to split into two broad sections. We believe
customers need to be clear on what the right advice or guidance
model is for them, based both on what they can afford and what
level of service they want and are willing to pay for. In addition,
we believe that non-advised annuity sales should be subject to
the same cost transparency rules as advised sales.
Proposal 4: Streamlining customers’
retirement savings
2.9 As switching jobs every few years is now the norm for most,
people are increasingly contributing to several private pension
schemes during their working lives. Aviva research suggests
that one in three workers (30%) have five jobs throughout their
lifetime. We therefore believe legislation should be introduced
to allow the automatic transfer of small auto-enrolled pension
pots, so savings pots follow members when they move jobs.
Proposal 5: Helping customers choose an
appropriate level of guidance and advice
2.10 Aviva believes it should be as simple as possible for every
customer to choose the level of support they need when
making financial decisions about their retirement. To bridge
the gap between non-advised, direct purchases, and full
independent advice, Aviva believes the industry and regulator
should press ahead in developing ‘simplified advice’. We also
suggest a new form of adviser ‘badge’ is created and promoted
to customers so they know that if they talk to a ‘retirement
adviser’ they will be able to create a plan that addresses all their
financial needs.
Aviva Real Retirement Report 7
Introduction
3.1 The world is changing and the way the retirement industry
works needs to change with it. People are living longer and the
average age of the UK’s population is rising. According to the
Office for National Statistics1, over the last 25 years the number
of people aged 65 and over increased by just over
1.8 million, and the proportion of people over 65 is projected to
increase from 16 per cent in 2008 to 23 per cent by 2033.
3.2 Over the same period, the percentage of the population
aged 16 or under will decrease from 19% to 18%. Old age
support ratios will therefore fall - in 2008, there were from 3.2
people of working age for every person of state pensionable
age in 2008, and this is expected to fall to 2.8 by 2033 – even
taking account of future changes to state pension age.
Increasing life expectancy in the UK’s ‘Oldest
old’ (over 85)
3.3m
1.3m
660,000
1984 2008 2033
3.3 The current life expectancy for a man age 65 now, is to live
for another 17.6 years, while a woman of the same age can
expect to live for a further 20.2 years. But men born in 2009 are
projected to live for 88.7 years and women for 92.3 years2.
3.4 While this is great news for individuals, the ageing
population has huge implications for society as a whole, as
current pensions and benefits are funded through tax and
national insurance receipts paid by those currently in work.
Currently 11.3 million people receive the basic state pension3.
As those in receipt of a pension and other retirement benefits
increases, and the number of working people falls, the
government of the day will find itself increasingly unable to
provide a living income to all those people in retirement.
3.5 The statistics mean people coming up to, or newly retired, face
a raft of financial problems. Not only are they unlikely to have the
security of a decent defined benefit pension scheme, they also
face falling property values, historically low savings rates and a
government that is unlikely to be able to pay a meaningful state
pension over the full term of their retirement.
1/2
National population projections,2008-based – Office for National Statistics
3 5
DWP press office, March 2011
8 Aviva Real Retirement Report
3.6 So what is being done to help people make the most of their
savings and investments? There are currently products readily available
such as annuities and equity release that allow people to maximise
their income in retirement. However the problem is that timely, useful
information is not always reaching people and encouraging them to
take the steps needed to effective retirement planning.
3.7 Of course, making the best of use of their savings,
investments and assets is just one part of the financial planning
people need to do to have a secure and comfortable retirement.
Aviva research found that the largest single source of income for
the over-55s is the state pension (61%)4, but at the moment two
thirds of people (68%)5 don’t know or overestimate its value.
3.8 The Government’s recent Green Paper on moving to a simpler,
flat rate state pension is a great step in helping people understand
what they’ll be entitled to when they approach retirement. Moving
to a simpler system will help address this confusion and with a
greater understanding of what individuals can expect from the
state, people will be better placed to plan their private savings.
3.9 Additionally, from October 2012 onwards, automatic
enrolment into pensions will be introduced. As well as an increased
number of people saving into existing schemes, the new National
Employment Savings Trust (NEST) could offer pensions to as many
as six million people – those aged 22 or above earning more than
£7,475. Any current employee without access to a good-quality
occupational pension will be auto-enrolled, though they do have
the option to opt out. They will have a 4% contribution deducted
from their salary, with their employer adding at least 3% and the
Government 1% to bump it up to a minimum 8%. While not a
perfect solution it should encourage those people to save for their
retirement who may not have done so without the new system.
3.10 The current generation of newly retired or soon to be retired
also find themselves part of a new phenomena defined as the
sandwich generation. They face pressure to care for their own
parents and to help their children either financially or through care
of grandchildren leaving them squashed in the middle.
Retiring with Aviva:
Over 680,000 retirement customers
£20 billion retirement funds under management
Over 24,500 new annuity customers came to Aviva in 2010
£1.4 billion paid out each year to UK retirees by Aviva
4
Aviva Real Retirement Report, May 2011
Syndicated “At retirement Survey”, in conjunction with Marketing Sciences, August 2009
3.11 Aviva has been tracking the attitudes and issues facing pre
and retired people for over a year through our quarterly Real
Retirement Reports. These reports divide older people into three
distinct group – pre-retirees aged 55-64, newly retired aged 65-74
and long term retired aged 75 years or more, recognising that
people at different times of their retirement will be facing different
issues. Currently almost 18 million people – 29% of the UK
population - are over 55, so their views are increasingly important.
3.12 Financial worries dominate all of these age groups and for
good reason. The March 2010 report reveals that, year on year,
their average income has fallen by 4%, the level of mortgage
debt carried into retirement has increased by more than
£10,000 to £65,107 and the number of people with a savings
pot of less than £500 jumped to nearly a third over the year.
3.13 The research reveals the paucity of many people’s
retirement income provisions. A state pension is the largest
source of income for 61% of people aged over 55, with a work
pension providing the bulk of their income for 38% and earned
income and wages being most important for 36%.
3.14 Differences can be seen in the amount of savings each of
the age groups have. While 30% of the retired age groups – 65
plus - derive an income from their savings, more than a quarter
of pre-retirees has no savings. Only 14% of those already retired
claimed to have no savings.
3.15 Debt is also an overriding worry – especially for an age
group that no longer typically has the capacity to continue
earning. The March 2010 Real Retirement Report revealed that
one in seven do not think they will be able to pay off their debt
in their lifetime and almost a quarter believe it will take them
until they are at least 75 to be debt free. Credit card borrowing
is the most common debt, owed by around a third of each age
group – with an average balance of £3,311, though the largest
debts are through personal loans at an average £5,983.
3.16 This generation does however have property wealth on
its side, and for many deriving an income from bricks and
mortar is a key part of their retirement planning. For these
people, downsizing, equity release, renting a room or
buy-to-let form part of their retirement plans.
3.17 Previous generations of retirees typically had less complex
financial choices – retiring with a more stable state pension
system, greater numbers of final salary schemes, and typically
with fewer pension pots to juggle due to having fewer jobs or
careers in their working lives. But today retirees face a more
complex range of choices. The growth of defined contribution
schemes leaves individuals having to make choices about the
type of annuity they need, which may previously have been left
to employers or pension trustees – choosing between a fixed or
inflation-linked income or whether to take a ‘joint life’ annuity
which secures benefits for a surviving spouse.
3.18 People also face the challenge of navigating a sometimes
opaque market to find the best value annuity rate for them. As
the market currently stands, too many retirement providers are
happy to take customers’ money but do little to actually make
sure this money buys the best possible pension income when
their customer comes to retire.
3.19 Without the right support from the retirement industry, too
many customers will continue to miss the chance to make the best
retirement choices – they may be too loyal to their current pension
provider to realise they might get a better annuity deal with
another firm, they aren’t aware of the positive impact a medically-
underwritten annuity could have on their income, and they aren’t
shopping around or getting the right level of information and
advice they need.
3.20 Aviva however believes there are a number of measures that
can be taken to improve people’s retirement finances. The annuity
market was worth £10.8 billion in 2009 (source: ABI) and will
expand rapidly as more people retire, and a greater proportion
retire with a defined contribution pension. It is therefore vital we
reform the annuity market now so it offers the best possible value
to people entering retirement in the future.
3.21 The proposals contained in this report would be cost neutral
to the Government, but improve immeasurably the standard of
living and cash flow of people going into retirement.
Aviva Real Retirement Report 9
Aviva’s proposals
The Open Market Option
4.1 Most people do not know what an annuity is or how to get
the best one for their circumstances. This ignorance is costing
them literally thousands of pounds during their lifetime in lost
income. Last year 426,392 new annuities were taken out by
385,000 people, of which 57,982 were impaired life annuities.
But, according to the Association of British Insurers (ABI), two
thirds bought the annuity on offer from their pension providers
rather than move to a better value product – and in many cases
these customers are unlikely to have researched the market to
find the best annuity for them before they made a choice.
4.2 The mechanism to help customers access the best annuity
is already in place via the Open Market Option - but it clearly is
not working as well as it could. Aviva wants the current system
to be modernised to make it easier for customers to get the
best deal they can for their retirement.
4.3 The main objective for a reformed open market should be
to ensure customers feel confident, supported and engaged
throughout the whole process - from deciding the level of
advice they need, understanding what kind of annuity is most
appropriate for them and looking around for the best rate.
4.5 Maintaining these relationships, and improving the
information and tools available to consumers, should support
them through a smooth journey to make a confident choice
about their retirement finances.
4.6 To this end, we believe a series of structural improvements
to the Open Market Option process would deliver much better
outcomes for the UK’s retirees – so that those customers who
can get a more appropriate product by shopping around can
do so easily, without facing undue barriers to staying with the
provider they saved with if they choose to.
Aviva wants the publication of annuity rates – for both
the open and closed markets – to be made compulsory.
10 Aviva Real Retirement Report
Proposal 1: Requiring all annuity providers
to publish annuity rates to make it easier for
customers to make comparisons.
4.7 UK annuity providers are not currently required to publish
the annuity rates they offer to their customers when they
reach pension age. Many companies already do so – especially
those that are actively marketing their annuity products to new
customers – but there is still a secretive significant minority
allowing no comparisons.
4.8 Aviva wants the publication of annuity rates to be made
compulsory - no matter whether the provider is offering
annuities to the whole, ‘open’ market, or takes a ‘closed’
approach by only serving the customers that have saved for
a pension with them.. This should be done is such a way as
to allow a fair comparison between rates while protecting
commercially sensitive information.
4.9 Examples of the rates a customer could expect to receive
should be published via independent comparison tables
compiled by a regulator such as the Financial Services Authority
(FSA) – soon to become the Financial Conduct Authority (FCA)
or the Money Advice Service. To keep costs to a minimum the
tables could be displayed on their websites.
4.10 However the industry will need to work closely with
both organisations to help develop this and to ensure a protocol
is developed to allow various types of annuities to be displayed.
Further, we believe the government and industry should work
together to develop simple ways to effectively highlight to
consumers the better rates they may be able to get by
switching providers.

4.11 Customers receive staggered information from their
pension provider in the run up to retirement, and the second
phase information packs always contains personal quotes for
the customer. We propose providers should verify these quotes
against currently available market rates – potentially making
use of industry portals. These packs should make the customer
aware that they could get a better retirement income by
shopping around and indicate the possible increase.
4.12 Further, to help retirees understand the implications of not
receiving a market competitive retirement income, Aviva proposes
that these packs highlight to soon-to-be retirees examples of the
best market rates, when the annuity the customer is being offered
by their pension company is 10% less than the best rates available
in the market for the same type of product.
Proposal 2: Including medical questionnaires
in maturity packs to drive access to automatic
underwriting in annuities.
4.13 One of the most noticeable changes in the retirement
market over the past few years has been the rise in number of
enhanced or impaired life annuities. These are annuities which
use medical underwriting to provide a higher than average
income to people with conditions or lifestyles that are likely
to reduce their life expectancy – such as obesity, asthma or
diabetes. However, the Association of British Insurer’s Annuity
Purchasing Behaviour paper reveals that, while 51% of
those surveyed had heard of an enhanced annuity, they only
accounted for 10% of all purchases.
4.14 Whilst the rising number of enhanced and impaired
life annuity sales is intrinsically a good thing, these policies
have typically been sold to customers receiving advice – 93%
according to the ABI report. This means there is a significant
proportion of the market which does not have automatic access
to enhanced annuities – regardless of whether they turn out to
be eligible or not.
6
ICM Research for Aviva, April 2011
while 51% of people had
heard of an enhanced annuity,
they only accounted for 10%
of all purchases
4.15 Aviva proposes that basic medical questions are included
in all customers’ pension maturity packs to ensure those who
qualify for an enhanced or impaired annuity are more easily
identified by the industry so firms can automatically offer them
a tailored annuity. Furthermore, we believe this information
should be used to generate underwritten annuity illustrations
within the second phase of information the customer receives
closer to retirement.
4.16 This simple step would radically transform retirement
income for many customers in the UK market, as each
would receive a fully underwritten annuity matching their
circumstances. Where a customer has a health condition, they
would automatically receive an annuity rate which factors this
in and provides access to ‘enhanced rates’ (where appropriate)
across the market.
4.17 If a provider chooses not to offer an annuity with
medical or lifestyle underwriting to a customer with a medical
or lifestyle condition, we believe the provider should be
compelled to tell the customer they could potentially receive a
significantly better annuity rate in the Open Market.
4.18 Based on our experience of including these medical questions
as standard, Aviva believes there is also an important consumer
education issue around annuity medical questions. Customers can
mistakenly believe that declaring medical information will have an
adverse effect on their retirement income - making some people
reticent in sharing this information. One in ten consumers Aviva
surveyed said they would withhold medical information on an
annuity application form for fear that it would affect their pension
income, and over a fifth their income may decrease as a result of
any medical conditions.
4.19 An industry-wide initiative to help customers’
understanding is needed, to play a key role in increasing the
take up of enhanced and impaired life annuities. It needs to be
explained clearly that providing adverse medical information will
only ever improve the income on offer, never reduce it.
Aviva Real Retirement Report 11
Aviva’s proposals
Creating an annuity market fit for the future
4.20 Over the past 20 years there has been a dramatic change
in the demographics of the retirement market place, which the
industry as a whole has been slow to respond to. The two key
changes are that today’s retirees are living longer than ever
before and the way they have built up their pension savings is
different to previous generations.
4.21 A sea-change is needed in the way consumers view their
impending retirement and how it is financed. They need to be
encouraged to move and amalgamate their smaller pension pots
and to research both the annuity market and the type of advice
they receive, be it from their employer, a financial adviser or an
insurance company. Only then will they be in a position to make
an informed choice about maximising their income in retirement.
Proposal 3: Reducing the costs of switching
providers
4.22 When the FSA’s Retail Distribution Review is implemented
in 2012, the way customers access advice and guidance about
their annuity is likely to split into two broad sections. Firstly,
consumers may take full financial advice and the RDR will
require the adviser to agree upfront with the customer a clear,
standalone fee for advice.
4.23 Alternatively, customers may use a non-advised purchase
route to choose their annuities. This service will not be subject
to the same adviser charge transparency regulations and may
continue to be charged on a commission basis. For many
customers with relatively straightforward needs who have
the confidence to act for themselves using guidance and
information provided by the Money Advice Service, FSA and
providers, a non advised sale is entirely appropriate.
As switching jobs every few years
is now the norm for most, people
are increasingly contributing to
several private pension schemes
during their working lives.
12 Aviva Real Retirement Report
4.24 We believe customers need to be clear on what the right
advice or guidance model is for them, based both on what
they can afford and what level of service they want and are
willing to pay for. However, currently we are concerned that in
some cases, the transparency being introduced into the advised
market will not be mirrored in the operation of non advised
sales. For non-advised sales, the cost can be too high and not
immediately obvious. So theoretically, those customers who may
opt for a seemingly lower priced service may actually end up
paying more than had they had the benefit of full advice.
4.25 This is clearly not fair to consumers and we believe
safeguards should be put in place to ensure each customer
bears an appropriate, fair and transparent cost for the level of
advice they receive. Part of the solution will be to drive healthy
competition between annuity distributors, as much as between
annuity providers.
4.26 Non-advised annuity sales should therefore be subject
to the same cost transparency rules as advised sales. Ensuring
charges are transparent and allow customers to understand the
level of service they are buying will help empower consumers in
shopping around and thereby drive down the cost of switching.
Proposal 4: Streamlining customers’
retirement savings
4.27 As switching jobs every few years is now the norm for
most, people are increasingly contributing to several private
pension schemes during their working lives. Aviva research
suggests that one in three workers (30%) have five jobs
throughout their lifetime.
4.28 However, a worrying number of people are failing to
keep details of their different pension pots, which could
ultimately affect their private pension income in retirement.
And nearly two thirds (60%) are unaware they can combine
their private pension pots at retirement, potentially increasing
their retirement income.
4.29 Aviva believes it should be as easy as possible for people
who have had a number of jobs to keep track of their pensions
and to combine them into one easy to manage pot. As well as
struggling to stay on top of a number of small funds, savers who
have built up several smaller private pensions across their working
life are often quoted worse annuity rates by their existing pension
providers, than they could receive from one combined pot.
4.30 While the introduction of auto-enrolment in 2012 will help
get millions more people saving, it’s also likely to make it even
harder for people to keep track of their funds – especially if they
switch jobs regularly and build up a few small pension pots after
being auto-enrolled into a variety of qualifying schemes.
4.31 We therefore believe legislation should be introduced to
allow the automatic transfers of small auto-enrolled pension
pots, so savings pots follow members when they move jobs.
For this to be a success, the pensions industry should work
together to develop a form of central clearing house to manage
the transfer. This could make transfers easier by each pension it
processes to the customer’s National Insurance number. We also
believe the restriction on transfers into and from NEST should
be removed to facilitate this.

Aviva believes it should be as easy

as possible for people who have
had a number of jobs to keep track
of their pensions and to combine
them into one easy to manage pot.

Aviva Real Retirement Report 13

Aviva’s proposals

Addressing customer needs

4.32 People who can access the level of information, support and 4.34 Aviva believes non-advised services may become more
guidance they need when they come to choose an annuity will be attractive when the rules to remove commission from products
far more likely to choose the type and level of annuity that suits bought through full advice from an independent financial adviser
them. But in many cases customers are not encouraged to seek an come into effect under the Retail Distribution Review in 2012. It is
alternative journey to the ‘default’ they are offered by the firm they good news that the costs of advice will become more transparent,
have been saving for a pension with. however, these measures may limit the numbers of people unable
or unwilling to seek advice.
Proposal 5: Helping customers choose an
appropriate level of guidance and advice
4.33 Aviva believes it should be as simple as possible for every
The financial services market
customer to choose the level of support they need when making would fail its customers if they
financial decisions about their retirement. Customers who feel are limited to either making their
confident and knowledgeable, and who may have relatively simple
retirement finances, may well be entirely happy purchasing an own choice with limited support,
annuity direct from a provider, over the phone or the internet, in or having to pay upfront for a
a non-advised setting. On the other hand, there may be many
vulnerable customers who are disconnected from the financial
full advice session
services industry, and need easy access to appropriate sources of
advice and information. In short, consumers should have confidence
in the level of support they receive, no matter which route they use
to manage their retirement finances.

14 Aviva Real Retirement Report

4.35 The financial services market would fail its customers if they are
limited to either making their own choice with limited support, or
having to pay upfront for a full advice session (particularly customers
with smaller levels of savings or income who may find the costs of
advice a deterrent.) Without some form of personalised support,
some customers may feel cut off and unable to make the right
choice for them.

4.36 A middle ground is therefore required, and following the Retail

Distribution Review, the proposed introduction of ‘simplified advice’
could be a great solution for many customers who, with the right
amount of guidance, would feel comfortable choosing the type
of annuity and provider that is right for them. However, for these
services to develop, the industry needs much greater regulatory
clarity. Challenges around the level of qualification the people helping
customers need to have remain - and we are asking that the ‘simplified
process’ itself is regulated, rather than the person delivering it.

4.37 We’ve seen that people are retiring with a greater number of
pension pots, a combination of final salary and defined contribution
pensions, and drawing on a range of assets such as investments,
and housing, and continuing to work to earn some income during
retirement. To make the most efficient and effective use of this
range of assets, some customers may wish to access advice that
addresses each area of a customer’s finances and talk to providers
and advisers that either advise on the full range of needs themselves
or refer to a specialist where they aren’t qualified. We suggest a
new form of adviser ‘badge’ is created and promoted to customers
so they know that if they talk to a ‘retirement adviser’ they will be
able to create a plan that addresses all their financial needs.

We suggest a new form of adviser

‘badge’ is created and promoted to
customers so they know that if they
talk to a ‘retirement adviser’ they
will be able to create a plan that
addresses all their financial needs

Aviva Real Retirement Report 15

Conclusion

5.1 The current retirement industry, while not broken, is no
longer serving customers as well as it could. It was conceived in
a different era, when people’s pensions were much simpler and
their life expectancy lower.
5.2 Wide sweeping social and economic factors are changing the
retirement landscape in the UK, with both working and saving
patterns changing dramatically.
5.3 Responding to these trends, the Government is introducing
radical changes to the state pension system and retirement
rules, such as the introduction of automatic pension enrolment
and NEST, removing the requirement for everybody to buy an
annuity before they are 75, and publishing proposals to move to
a simpler flat rate pension.
5.5 We must make sure we are offering the best retirement
options for customers, and this means providing timely and easily
understandable advice and information. This should help ensure
that searching the market for the best annuity deal to suit their
personal circumstances will become second nature to a new
generation of confident, astute consumers, just as it has with the
purchase of car and home insurance. Customers need access to
retirement advice that not only matches their financial needs, but
which also encompasses their lifestyle and longer term needs.
5.6 To make these aspirations a reality, Aviva believes the
industry must support the reform agenda the Government is
progressing, by implementing the changes we have outlined to
make retirement and annuities work for customers once more.

5.4 The retirement industry must play its part in rethinking

its retirement offerings and adapting them to the social and
economic changes ahead. Our customers face a very different
retirement to their predecessors and we must takes practical
steps to support them in this new landscape, to help our
customers achieve the prosperity and peace of mind that they
have saved all their lives for.

16 Aviva Real Retirement Report

Glossary
What is an annuity?
6.1 An annuity is a retirement income plan, which is designed
to provide an income for the rest of your life, no matter how
long you live. You buy an annuity using a lump sum from your
pension or, perhaps, some savings
Annuities are only available from insurance companies.
What is the Open Market Option?
6.2 An individual can choose who to buy their annuity from
- it doesn’t have to be with the insurance company that they
used to build up their pension fund. The amount of income
an individual could receive from an annuity will vary between
different insurance companies, so it’s a good idea to do some
comparisons before making a decision.
What is “Tax free cash”?
6.3 An individual can normally choose to take up to 25% of
their pension fund as a tax-free cash lump sum. This may be
paid either by the pension provider or by the annuity provider,
depending on an annuity is purchased.
What is a pension?
6.4 A personal pension is a long-term investment that aims to
help an individual build up a pot of money that they can use to
buy an income when they retire.
It’s a tax efficient way to invest for retirement because
HM Revenue & Customs (HMRC) adds tax relief to the
payments made into a plan.
What is a defined benefit pension scheme?
6.5 A defined benefit pension scheme is one that offers a
retirement income which is directly based on your final salary
when you retire or leave the company, and your length of service.
What is a defined contribution pension scheme?
6.6 With a Defined Contribution pension scheme (also known
as money purchase), the benefits are not known until they are
taken. Contributions are paid to the scheme and invested in
the chosen investment funds and the value of the fund when
the member takes their benefits will be used to provide their
pension benefits, usually by buying an annuity.
What is automatic enrolment?
6.7 In October 2012, new employer duties are planned to come
into force, which will require employers to enrol eligible workers
into a qualifying workplace pension arrangement. While
individuals will have the right to opt out, those remaining in the
scheme will have to make contributions which will gradually be
phased up to 4% of their qualifying earnings. Employers will
be required to contribute 3%, and the government will add
another 1% in tax relief.
Aviva Real Retirement Report 17
Aviva also produces a series of reports looking at
Retirement and Prosperity in the UK and across Europe.

The Real retirement report

Quarterly insight into the attitudes of UK retirees and pre retirees

Mind the Gap

Regular insight into retirement funding across Europe

Family Finances Report

Developing a picture of UK family types and their approach
to finances

Future Prosperity Panel

Working with the Economic Intelligence Unit and leaning
thinkers to better understand the financial issues
affecting customers

These reports are available on www.aviva.com/media

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Aviva Life Services UK Limited is authorised and regulated by the Financial Services Authority.
www.aviva.co.uk

30854 05/2011 © Aviva plc