Market environment.

Hopes for a sustained global economic recovery continue to be thwarted by ongoing austerity programmes, fears over sovereign debt and the inability or unwillingness of banks to lend. Yet at the same time, UK insurance companies need to build growth against a backdrop of relentless regulatory change.


European population growth 1950-2050
European population growth 1950-2050 (graphic)

Source: United Nations Population Division

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The ageing of most western populations poses considerable challenges for governments. In the UK, by 2030, over-60s will have grown from 22.6% of the population to 27.8% in just 20 years and the average 60-year-old woman will live until 88. Longevity and an ageing population are impacting UK government policy in three significant ways:

  • The reduced ratio of the working population to the retired population makes it difficult to raise sufficient revenue from income-related taxes to finance central spending. This has been partially remedied by raising the retirement age.
  • The state finds it difficult to finance retirement pensions. Solutions for this problem include the encouragement of private pension saving and changes in the retirement age and state pensions.
  • Central government and local authorities are already finding it difficult to finance the costs of social care for elderly people. While the current generation is potentially able to contribute towards the costs through releasing housing equity, future generations may find this more difficult.

Again we believe that a partnership between insurance companies and the state can help to solve many of these problems. Auto enrolment should enable many millions of people to build better retirement pensions. The insurance industry can also work with the government to encourage people to plan much earlier in life for long-term care costs. We see the recent government announcement on social care funding reform as an important first step and we look forward to helping the government find solutions to this difficult problem.

The new pensions auto enrolment rules mean more lower and middle earners will have access to a private pension. This, together with the expected reduction in pension allowances, should mean that a greater, fairer, proportion of available pensions tax relief will benefit these lower and middle earners. We believe that retaining pension tax relief to encourage people in saving for retirement remains important.