While we contemplate the future of DB plans, the DC world has been changing fast. The triple whammy of EU Solvency II, the introduction of NEST and the threat to distribution posed by the the FSA’s Retail Distribution Review has asked some serious questions of insurers seeking new business in the UK.
The Prudential thought they had found the answer in the Far East, Aegon appear to have no answer and Axa have sold most of their UK corporate pension interests to Friends Life, the trading arm of Resolution. This has dramatically reduced the number of serious players providing solutions to large UK corporates establishing DC plans.
You’d have thought that the “last men standing”, the insurers – Zurich, Friends, Scottish Widows and Standard Life and the asset managers Blackrock, HSBC and Fidelity (themselves trading as insurers) would now concentrate on the serious business of filling the gap left by the collapse in DB accrual. However they have bigger ideas.
These DC providers have widened their sights. They now aspire to provide holistic financial services in and through the workplace. This is variously known as “worksite marketing”, “corporate wrap” or, to the sceptical, “cross-selling”.
To do this, they need to get information from HR systems -“the HR interface” and they need to provide employees with a view of the various products they have purchased- “a portal”. These products need to include a means of feeding shares accumulated through “sharesave” schemes using “straight through processing” incorporating “in specie” transfers into the various products “on the rostra”.
From this display of jargon, you may have detected the dead hand of management consultants and you would be right. This is payback time for the fortunes sunk into corporate strategy with the likes of Mckinsey and Bain over the past 15 years.
The “output” of all this is evident in the latest DC schemes to be announced . The GSIPP schemes offered by Standard Life to BT, Centrica and Logica, the Corporate Wrap offered to CSC by Scottish Widows and various announcements from Zurich and Friends of corporate wrap platforms to be launched later in the year.
Add to this the establishment of insured investment platforms within most large occupational DC plans and the inexorable advance of contract based arrangements and it becomes clear that the “magic circle” of life insurers still active in the UK has become very powerful.
There are new warlords here. Step forward Trevor Matthews, crown prince of the brave new wold, former strategist at Standard Life and now CEO of Friends Life. Step forward David Harris, ubiquitous rainmaker, strategist to Trevor Matthews and the man who brought FNZ to the UK. Step forward Adrian Durham, MD of FNZ who has positioned his company as the technology provider of choice for corporate wrap. There is hardly a player above that does not have Harris and Durham informing on their corporate “pension” strategy. That FNZ has been able to punch so far above its weight is a testament to their vision and application.
So “what” might you say, “does this mean to the “end-users” of these propositions employees (formerly members)?”. Judging from the leaked press release for the new CSC corporate wrap, it looks like a one-stop shop for the financial services offered by the Lloyds banking group;- a brave new world indeed!
The big technology players, CSC, Logica, BT and O2 are sponsors of some of the largest occupational DC plans in the UK. These schemes are becoming the battleground on which the war for DC supremacy is being fought.
The providers of the payroll and HR systems on which the insurers depend, SAP, Sage and the like wait in the wings. The efficient transmission of data between HR systems,payroll systems and the systems of DC providers is critical to the success of the new DC proposition. Attempts are being made (by Logica!) to establish common protocols between these systems . It remains to be seen, in such a contentious environment, whether such collaboration is possible.
In a world where trustees are increasingly marginalised and B2B relationships drive the procurement process, the place of the traditional power brokers, the consultancies, is being questioned. The threat of disintermediation has forced the major consultancies to reconsider their business models.
The consolidation we are seeing between the larger consultancies provides them with the scale to compete as manufacturers with the insurers and technology providers. The worry is that without fiduciaries and with advisers becoming providers, protection for the users of these arrangements will be compromised.
An even bigger worry is that in this battle for supremacy, sponsors ,providers and advisers take their eyes off the major consideration, that these arrangements need to provide adequate private provision for the employees for whom they are established.