Research Reveals Anticipated ‘Wave’ of New Products in the Retirement Savings and Income Market

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LONDON  — A new State Street Corporation (NYSE: STT) survey* with senior insurance executives and investment advisers reveals that the majority expect recent UK regulatory changes impacting pensions and annuities will result in an injection of innovation into the market over the next five years. Survey respondents believe that new products and services will be developed to take advantage of the new flexible environment.  

The research from State Street reveals that 47 percent of insurance executives interviewed said it would lead to more innovation, compared to 14 percent who said it would lead to less creativity.  The corresponding figures for investment advisers interviewed are 56 percent and 4 percent respectively.

In terms of product development and marketing, the findings suggest the main focus will be on income drawdown followed by products with capital and income guarantees, then U or J shaped annuities where income can go up as well as down to match retirement income needs, and investment structures concentrating on residential properties.  However, one in five insurance (20 percent) executives believe insurers’ existing underlying fund structures and asset allocation blending capabilities may hinder their ability to develop these products.  Investment advisers are slightly more concerned about this, with 36 percent expressing doubts.   

Some 43 percent of insurance executives and investment advisers interviewed believe the new rules will see insurers grow their sales in the retirement planning market over the long term, compared with 28 percent who expect a decline.  The corresponding figures for investment advisors are 43 percent and 26 percent.  However, both groups expect a decline in profit margins – 52 percent of insurance executives believe this will happen compared to 66 percent of investment advisors.

David Howie, head of insurance solutions in the UK for State Street said, “The UK retirement planning market is going through a radical change, which represents a very exciting opportunity for insurers and other product providers.  Our research suggests there is going to be a huge amount of innovation and creativity when it comes to developing new products and services, but the industry clearly feels there will also be more competition.  Just over half of the insurance executives and advisers interviewed expect new companies to enter the UK market, so providers are going to have to move quickly in terms of amending their proposition and developing new products.

“However, the industry needs to guard against inappropriate products being rushed on to the market, with 22 percent of insurance executives and 15 percent of investment advisors being ‘very concerned’ about this happening.”

New products 

In terms of product innovation and focus, half of investment advisers expect the income drawdown market to grow by more than half between now and 2019.  The corresponding figure for insurance executives is 46 percent.

Over the next five years, seven out of 10 investment advisers expect an increase in product development and marketing around retirement investment and income products with capital and income guarantees.  Some 43 percent expect this with U and J shaped annuities that pay varying levels of income depending on your age, and 36 percent anticipate this for residential property related products. This is followed by one in three who anticipate this for care funding annuities and also fixed term annuities.

Insurance executives have a slightly different view on where the industry will be placing most emphasis on. Half said there would be an increased focused on products with capital and income guarantees, and this was followed by U and J shaped annuities (47 percent), and then residential property related products (43 percent) and deferred annuities (40 percent), which don’t make payments until an agreed age.

These findings come in advance of a new, soon to be released State Street report on the changing competitive environment for insurance companies. The report shows how firms are refocusing their technology spend to invest in tools that provide better customer insight. These insights are critical as insurers seek to enhance product development and tap new market segments. The research, which draws on a global survey of 300 insurers, will be published in September 2014.

*Survey conducted in July 2014 with 57 senior insurance executives and 70 investment advisers in the UK.

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $28.4 trillion in assets under custody and administration and $2.48 trillion* in assets under management as of June 30, 2014, State Street operates in more than 100 geographic markets worldwide, including the US, Canada, Europe, the Middle East and Asia. For more information, visit State Street’s web site at www.statestreet.com.

* Assets under management include the assets of the SPDR® Gold ETF (approximately $33 billion as of June 30, 2014), for which State Street Global Markets, LLC, an affiliate of SSgA, serves as the distribution agent.

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