If you thought you were sick of pensions, imagine the nausea of the life company CEO.
If you are such a beast and reading this, you are probably are American or European and your company brought into the UK a few years back as a land of milk and honey. Since then you’ve had to contend with pension mis-selling crisis’, the retail distribution review and now a battery of studies, investigations and the like from a plethora of regulators and other quangos.
“Nobody told me it would be like this”
The predicted closures of DB plans has happened but the predicted asset transfer (as happened in South Africa) hasn’t.
Pricing of contracts written in the early noughties has proved to be hopeless with the duration of most Group and Stakeholder personal pensions, pitiful. Indeed many of the schemes set up then (such as the House of Fraser AXA stakeholder), have simply been replaced by similar but cheaper arrangements (in HOF’s case from Aviva).
This race to the bottom on AMCs has resulted in a plethora of small pots to the frustration of the DWP, the life companies and most pertinently the members.
Much of the commission has been (because of stakeholder) unrecoverable. Meanwhile , money sunk into IFA networks has similarly been deemed sunk cost and written off as “last year’s vanity project”.
But nothing – nothing – has hoovered up the CEO’s spare cash like “corporate wrap”. Egged on , first by the management consultant;s vision of work site marketing and latterly by the large actuarial consultants (particularly Mercer), life company chief executives have placed their bet on a single number on the pensions roulette board. That number is the “wrap”, comprising a portal through which employers and employees can see the various benefits offered across the workforce or to an individual (respectively). The second is a platform which can allow the life company to offer a variety of services directly to the market.
PORTALS are for SHOW, PLATFORMS are for DOUGH. The loss leading portal – which included lots of fancy graphics and plenty of modelling tools to keep staff happy – typically costs £30m to build , though latest estimates for the more snazzy variety are rumoured to have cost closer to £100m.
The financial justification for the spend seems to be
- Everyone else has one
- We can probably charge 0.1% extra on the AMC for the portal
- In time people will see sense and buy all our other products
- It keeps the advisers happy
- It may give us an edge in the auto-enrolment feeding frenzy.
All of these premises seems to be shaky
- Reading the Platforum’s excellent report on corporate wrap, it’s hard to find any differentiation between the corporate wraps on offer
- Only one platform (Fidelity’s) has broken the £400m AUM barrier, to recover a £30m spend, that needs to increase to £30,000m – maybe one will break through but you’re in a field of twelve and the “handicapper has you in his grasp”
- People seem to be deciding to buy their ISAs , life policies and manage their company shares and resulting tax, privately and not through a company facility
- The advisers are unhappy, they want their commission back and are spitting out their dummies- corporate wrap has not been the hoped for pacifier.
- None of the early staging auto-enrolment plans has been set up as a corporate wrap. Legal & General, who have set up the vast majority of them have a corporate wrap version of their GPP which includes SIPP and ISA extensions, if they are promoting these, they are keeping very quiet! Indeed they don’t seem to have contributed to the Platforum survey.
Meanwhile the great unwashed (which includes me) puzzles at why we should be worrying about saving tax on ISAs and wrapping up our sharesave gains when the personal pensions we invest in are proving themselves unfit for purposesy.
Build your house by all means , Mr CEO, but make sure the foundations are solid.
And even in the posh seats where wrap was predicted to take over from old-fashioned unbundled occupational DC schemes, the story for the CEO is no better
Standard Life‘s SIPP option on the BT GPP is virtually unused, CSC who pioneered the use of Scottish Widows‘ “mymoneyworks” report virtually zero take up on the ISA and we have still to see mass migration of assets from the BT or CSC’s occupational DC schemes to take up the slack.
In summary, the corporate wrap project is proving a fiasco. The brave new world of flexed benefits , employee empowerment and osmosis of life products through the workforce hasn’t and isn’t happening.
The conversations that are going on with employers large and small are not about cross-selling ISAs into the workforce , or holistic reward statements. The conversations are about how to fit payroll and HR systems into the back-ends of the pension provider’s black boxes. The conversations are about what constitutes “good” and the arguments are about what the insurers and fund managers are leaking from their systems by way of charges.
The corporate wrap has been designed as a means of distribution but auto-enrolment has sorted the distribution problem out. Never mind the width, we want quality and the £100’sm + spent on wrap has done nothing to improve the underlying quality of the fund options, basic administration of contributions nor to improve the public’s perception of pensions.
Corporate wrap has become a massive distraction for insurers who needed to be focussed on auto-enrolment. The DWP’s forthcoming announcements on its “quality test” and on “consultancy charging”, the FSA’s review of annuity pricing and the OFT’s wider study of distribution all address the core functionality of the DC pension and have nothing to do with wrap’s breath of services.
The wrap trap has been set and has snapped, and who’s been caught?
This looks like another fine trap that the life companies have walked into.
- OFT rattles pension consultant’s cage -shock! (henrytapper.com)
- NEST Insight; what the 11m+ “unpensioned” think. (henrytapper.com)
- A splendid race to the bottom! (henrytapper.com)
- Right direction – wrong speed! Defining a “good” workplace pension. (henrytapper.com)
- The Regulator’s right to be cautious about mastertrusts (henrytapper.com)
- Never mind the width – feel the quality! (henrytapper.com)
- 2 cheers for the Regulator’s new clothes (henrytapper.com)
- “Comply or explain” – will “bottom up” regulation work for pensions? (henrytapper.com)
- Don’t enrol small pension schemes with high charges (thisismoney.co.uk)
- Who’ll pay the price for an auto-enrolment train crash? (henrytapper.com)
Nobody told me there’d be days like these. Strange days indeed ….
(but John and others did warn those of us old enough, quite a long time ago now, Henry).
Well it’s better than fighting wars I suppose!
It’s worth pointing out that the wrap concept itself has value and there are some excellent examples out there.
Wraps tend to be things that people buy into – usually because they’ve got money, time and confidence. They don’t tend to work well with people who haven’t.
Most of the 11m auto-enrolling don’t have time, money and confidence so wrap isn’t much use to them.
The smart guys who are doing well out of wrap, don’t seem to be making much noise but just getting those who buy the brand- to get on with it – unsurprisingly its the upmarket stockbroker type brands like Hargreaves Lansdowne and Fidelity who are finding the going easiest.
So is a wrap a highly segmented “wealth service” or is it the mass market product the insurers are selling it as – I suspect it’s the former.
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