Aviva UK: Rethinking Retirement in the UK, May 2011

8/6/2019 Aviva UK: Rethinking Retirement in the UK, May 2011

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Rethinking retirementin the UK


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Contents

1. Foreword 4

2. Executive summary 6

3. Introduction 8

4. Avivas 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


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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 Governments Green Paper

on moving to a simpler, flat rate state pension is a great step

in helping people understand what benefits theyll 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.

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 todays 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.

The market needs to evolve tomeet the needs of the currentgeneration of retirees, who arefacing the twin issues of increasedlongevity and reduced income.

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.

4 Aviva Real Retirement Report

Customers need the industry

to provide simpler ways to shoparound for a retirement income


5/20Aviva Real Retirement Report 5

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 tomorrows 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 MossGroup Chief Executive, Aviva

Aviva has long campaigned to help

customers understand they can shoparound to buy a retirement income


6/206 Aviva Real Retirement Report

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 todays

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 todays retirement environment, where

shopping around for the best deal isnt 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 Governments Green Paper on moving

to a simpler, flat rate state pension in the future is a great step

in helping people understand what theyll be entitled to when

they approach retirement.

2.4 To meet the needs of tomorrows 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 thepotentially high cost of switching and the fact that some providerschoose not to make their annuity rates publicly available for comparison.



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 providersto 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 questionnairesin maturity packs to drive access to automaticunderwriting 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 orimpaired annuity are more easily identified by the industry so

firms can automatically offer them a tailored annuity.

Proposal 3: Reducing the costs ofswitching providers

2.8 When the FSAs 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 customersretirement 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 anappropriate 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 believes it should be as simpleas possible for every customerto choose the level of supportthey need when making financialdecisions about their retirement.


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4 Aviva Real Retirement Report, May 20115 Syndicated At retirement Survey, in conjunction with Marketing Sciences, August 2009

1/2 National population projections,2008-based Office for National Statistics3 DWP press office, March 2011


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 UKs 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 UKs Oldestold (over 85)

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.

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 dont know or overestimate its value.

3.8 The Governments recent Green Paper on moving to a simpler,

flat rate state pension is a great step in helping people understand

what theyll 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 increasednumber 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.

660,000

1984 2008 2033

1.3m

3.3m

Introduction

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



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 peoples

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 agegroup 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.

3.17 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 arent aware of the positive impact a medically-

underwritten annuity could have on their income, and they arent

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 peoples 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.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.


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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.

4.6 To this end, we believe a series of structural improvements

to the Open Market Option process would deliver much better

outcomes for the UKs 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.

Proposal 1: Requiring all annuity providers

to publish annuity rates to make it easier forcustomers 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 withboth 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.

Aviva wants the publication of annuity rates for boththe open and closed markets to be made compulsory.

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.


Avivas proposals

The Open Market Option


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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 todays 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 switchingproviders

4.22 When the FSAs 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 subjectto 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.

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 savings4.27 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.


As switching jobs every few yearsis now the norm for most, people

are increasingly contributing toseveral private pension schemesduring their working lives.

Avivas proposals

Creating an annuity market fit for the future


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Aviva believes it should be as easyas possible for people who havehad a number of jobs to keep track

of their pensions and to combinethem into one easy to manage pot.

Aviva Real Retirement Report 13

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, its 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 customers National Insurance number. We also

believe the restriction on transfers into and from NEST should

be removed to facilitate this.


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4.32 People who can access the level of information, support and

guidance they need when they come to choose an annuity will be

far more likely to choose the type and level of annuity that suits

them. But in many cases customers are not encouraged to seek an

alternative journey to the default they are offered by the firm they

have been saving for a pension with.

Proposal 5: Helping customers choose anappropriate level of guidance and advice

4.33 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. Customers who feel

confident and knowledgeable, and who may have relatively simple

retirement finances, may well be entirely happy purchasing an

annuity direct from a provider, over the phone or the internet, in

a non-advised setting. On the other hand, there may be many

vulnerable customers who are disconnected from the financial

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.

4.34 Aviva believes non-advised services may become more

attractive when the rules to remove commission from products

bought through full advice from an independent financial adviser

come into effect under the Retail Distribution Review in 2012. It is

good news that the costs of advice will become more transparent,

however, these measures may limit the numbers of people unable

or unwilling to seek advice.


Avivas proposals

Addressing customer needs

The financial services marketwould fail its customers if theyare limited to either making their

own choice with limited support,or having to pay upfront for afull advice session



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 Weve 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 customers finances and talk to providers

and advisers that either advise on the full range of needs themselves

or refer to a specialist where they arent 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 adviserbadge is created and promoted tocustomers so they know that if they

talk to a retirement adviser theywill be able to create a plan thataddresses all their financial needs


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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 peoples 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 retirementrules, 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.

5.4 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.

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.


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Glossary

Aviva Real Retirement Report 17

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 doesnt 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 its 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 bepaid 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.

Its 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 knownas 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 bephased up to 4% of their qualifying earnings. Employers will

be required to contribute 3%, and the government will add

another 1% in tax relief.


18/20

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


19/20


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Aviva Life Services UK Limited. Registered in England No 2403746. 2 Rougier Street, York, YO90 1UU.

Aviva Life Services UK Limited is authorised and regulated by the Financial Services Authority.

www.aviva.co.uk

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Aviva UK: Rethinking Retirement in the UK, May 2011

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