There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. – Machiavelli

There’s a lot of change out there – insurers are shedding jobs like autumn fruit, financial advisers are having to re-shape their livelihoods, companies are having to absorb RTI, auto-enrolment – new changes every day! We even have new Regulators.

The big winners from change are “change consultants” until that is, they have to change themselves.

Till now, pension reform has been a one way street for the big pension consultants. While the rest of the traffic has been changing direction, they have driven smoothly on.

But the OFT study announced this week into workplace pensions has really rattled some cages. The Actuarial Post – on the money yet again – has been running reactions from leading actuarial consultancies and boy are they defensive!

Why? Ostensibly there seems no pressure on consultancy fees. Though it could be argued that if fat fees weren’t flowing to consultancies, contributions could go up and adequacy of pension incomes improve,

It’s not fee pressure that is the issue, the issue is scheme consolidation. This from Paul Macro of Mercer.

“Mercer hopes that the outcome of this enquiry does not lead to employers turning to low cost pension providers simply because they are cheaper. Consideration also needs to be given to the quality of the services on offer; otherwise, we are likely to see an increasing drift towards a handful of large ‘super-schemes’ on the basis of cost alone. Although these schemes have a lot to offer, it is important that employers weigh up the investment options, administration services and communication channels available, and whether these are appropriate for their workforce.”

There are literally thousands of workplace savings set up in the UK. As Mercer point out, many of them are established on extremely good terms. If advisory fees and commissions were stripped out , many more would be competing with the low cost master trusts (NEST , NOW etc).

What is not included in any of the reports is the additional costs (to pension contributions) paid by companies to implement and manager pension schemes. Lloyds banking group recently reported that the costs of establishing auto-enrolment had exceeded £1m. This is against an average estimated cost for large schemes of £4,800.

The DWP cost estimates for smaller schemes average £100 per scheme. If consultants think that they can continue to suck money out of the system at the rate they are achieving with the early staging auto-enrollers, the OFT has another thought coming.

There are far too many workplace savings schemes in this country. The vast majority of them fall into what the Regulator refer to as small (with less than 1000 members). But it is these small schemes that provide the consultants with their bread and butter.

If the OFT and the Regulator put pressure on smaller schemes to merge into  the “super-schemes” the consultancy opportunities are slashed, consultancy revenues slashed and the consultancy firms- including mine- find themselves having to change.

Nothing is so hard to take on board…

The outcome of the OFT study may well be a shake up in the way we organise corporate pension provision.

Instead of fearing this change, the likes of Mercer should be adapting to it, cutting overheads and looking at ways to offer value to companies in new ways.

I can assure you that First Actuarial is not moaning at change, we are shouting to the OFT – BRING IT ON!

If anyone from the DWP, tPR, FSA, FCA and the OFT wants to include us in their consultation , you know where to find us! We are building systems that will deliver the help to the literally million employers who are yet to properly engage with auto-enrolment. If the 1.3 million stagers into auto-enrolment end up in only 1000 or 100 super-schemes we’ll be applauding a job well done!

To finish – and this should scare Paul as much as the OFT, here is Ian Cowie of the Daily Telegraph’s reaction to the OFT study

There is no need to wait for yet another inquiry into financial services before you seek good value from what is most people’s biggest investment. Ignore idiots who say pensions are boring; the alternative to engaging with your pension now is poverty in old age.

If you want to avoid the rip-offs in company pensions, then get on to your scheme trustees now and demand details of charges. Nobody knows what – if any – investment returns you will achieve in future but you can act today to ensure that you get to keep more of them, rather than the fund manager.

Ian has recently been voted consumer journalist of the year, and has much more influence than all of us pension consultants put together.

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