AE Collaborations such as those advertised in Pensions Extra last week are a “neat fusion” according to Zurich’s Stephen Leffley. Barnett Waddingham’s Damian Stancombe admits their collaboration with Standard Life was driven by providers cherry-picking but stresses “at the very highest level we remain totally committed to the independent market”.
I say collaborations are a cop-out and consultants should consult, the neat fusion sounds like a Faustian pact.
It’s true, few of the employers staging auto-enrolment today, can afford the eye-watering costs of a conventional full market review. Standard Life and Zurich may soon only be accessible by Collaboration. Fidelity and BlackRock have all but pulled up the drawbridge. Who’s next?
At one level this is all in plan. NEST was created to plug this gap and as capacity decreases among insurers, mastertrusts like NOW and People’s Pension are stepping up to the plate. At a macro level- the DWP need have no concern of a capacity crunch just yet.
But I worry that we are losing advisory and provider capacity too easily. We cannot be complacent about the challenges ahead and we should champion independent advice.
In 2013, I invested my own money, that of my employer and resources of various business angels in a venture to offer all employers a full market review and a balanced scorecard which used First Actuarial analytics. The result was www.pensionplaypen.com and a fully realised service built within budget and to time. It is being used by employers, financial advisers and accountants to source pension offers for their clients, to compare those offers and on board the best proposition using the same selection process as employed by all the leading DC consultants. There are only two differences between this and a traditional full market review, the first is that it works in real time and the second is that it costs £500.
If the barriers to delivering this service are low enough, why haven’t other firms followed First Actuarial in this? The RDR has all but eliminated the IFA from selections and most non-regulated firms (such as accountants) do not feel equipped to provide whole of market advice at any price.
As we journey through 2014, capacity will decrease and as we hit the spikes of 2015, demand will increase to such levels that many employers will struggle to find capacity. Technology based platforms not only provide the employers a service, they can act as clearing houses, relieving this pressure. If we want an analogy, we need look no further than the recent floods, where a lack of pre-planning is being blamed for the overwhelming of Somerset/Berkshire/Kent. We should be opening our sluices not silting them up with Collaborations.
And I simply don’t buy the received idea that workplace pensions for SMEs are intrinsically unprofitable. Having worked for Zurich for 10 years I well know where profitability lies; get your distribution costs down, implement straight though processing , manage your external fund management costs and workplace pensions are an attractive proposition. If the supply side can be managed and providers can on board in a timely way, then the risk of not doing business outweighs the operational and financial challenges of “bottom feeding”.
I think that the UK insurance industry is taking a short sighted view and missing a once in a century opportunity to contribute to our national policy on pensions. Insurers may consider these Collaborations a flight to quality but the strategy is unambitious and unimaginative. Insurers should be encouraging innovation and should be prepared to trust new means of distribution that suit the way modern employers procure other services.
It is not too late to change this. Businesses like mine are scalable and they are also replicable. It would please me if there were several Pension PlayPens as there are several means to buy other compulsory insurance services. We can and should do better than AE collaborations.
This post first appeared in www.pensionplaypen.com