The public are in a “win-win” from pensions (for once) !

three wise monkeys


This report appeared in a recent edition of the Telegraph on the Monday before the Queen’s Speech.

The insurers have suffered their fair share of turbulence so far this year.

The shake-up of the annuities market unveiled in the Budget, the cap on pension charges and confusion over the scope of a regulatory review of the life insurance sector have all weighed on the sector in recent months. Unfortunately for investors, the upheaval is not over.

Standard Life slid 6.7 to 393.3p on Monday on concern that the group would be hit by the introduction of workplace “collective pensions”. Such funds, which would see workers pool their investments rather than build individual pension pots, are already common in the Netherlands and could be introduced here by 2016.

The reforms, reported by The Sunday Telegraph, are expected to be unveiled in the Queen’s Speech on Wednesday and the news “adds another unwelcome layer of uncertainty for investors”, said analysts at Bank of America Merrill Lynch (BoA).

While it may be that UK insurance companies “play an active role in the creation and administration of these collectives”, the BoA analysts noted that “this is not the case in the Netherlands”.

Given that Standard Life and Friends Life are the market leaders in corporate pensions, they “would likely be most affected by the creation of collectives”, the analysts predicted. As a result, shares in both came under pressure: Standard Life took most of the damage and ended the session as the third-heaviest faller in the FTSE 100. Friends Life reversed an early 1.2pc decline to close up 1.4, or 0.4pc, at 314.7p.

We are unlikely to see any of these CDC schemes until at earliest the summer of 2016, the market is taking an unusually long-view!

But I think the market is right and the commentators within the pension industry who say that the introduction of CDC will be a damp squib, could be wrong.

Many asset managers see the new annuity framework as an opportunity for them to take back market share lost to the insurers in the move from DB to DC. The Telegraph also features a bold article by Cambell Fleming, CEO of Threadneedle, one of the active investment managers who have feet in both retail and institutional fund management.

Threadneedle have tried (and failed) to become a DC  pension provider in their own right- ironically competing against Zurich (who owned them and then sold them). They failed and are now bit- part players on the insurer’s fund platforms.

The active asset managers, assuming they can get their product into the new collective schemes (and many will argue this will be another passive play) are likely to be net winners from a move to collectivisation. But it would be through their institutional rather than retail presence that they would make this advance.

But most insurers have little skin in the asset management game

Why the ABI and their members are so furiously opposed to CDC is that they get the threat that has marked their shares down. Many of the insurers have kept their asset managers, Sottish Widows, Friends Life and Zurich have sold their asset management arms and now lease-back fund management or contract it out to other managers (usually passive).

Even those insurers with integrated asset managers (Aegon, Royal London, Standard Life and Aviva) see the majority of funds on their platforms to other managers. Only BlackRock and L&G are net beneficiaries of this open architecture and only L&G offer their own mass-market pension product.

Traditional Insurance distribution channels are looking increasingly irrelevant to secure new pension related business.

Even more worryingly for most insurers, they have almost totally lost their institutional distribution capabilities.

By concentrating on IFAs  and direct retail distribution, the insurers have looked to build their businesses around a B2C (business to consumer model). This is at the other end of the spectrum to collective DC schemes.

Even where they have kept corporate relationships, they are ultimately using the employer as a gateway for retail products- group personal pensions.

So a return to collective arrangements -where Trustees or IGCs operate pooled solutions and the end consumer – has virtually no touchpoint with the insurer runs directly against the strategies of the insurers.

Who will win in this long-term game?

I don’t think that CDC is a bonanza for insurers or active  fund managers- both will see margin erosion and any change will benefit low cost passive managers.

I know who I want to win- the consumer.

Both the insurers and the collectivists will argue they are on the consumers side. Where the focus turns on the needs of the consumer rather than on securing distribution….

There should be  only one winner -the public

Ultimately this is a political decision, by which I mean it will be decided by the “polis” – the people.

If collective solutions reach fruition (and there are many hurdles to get over before they do), then they will compete for the money of the “polis” (consumers as we call ourselves) and they will decide.

Undoubtedly the debate will drive many under performing  pension schemes – especially trust and master trusts – out of the market. This consolidation will hurt the consultants to these schemes (of which I am one). Collectivisation is not good news for actuarial and other pension consultants, in fact it will speed up the end game for the occupational pension industry as we know it.

The consolidation that this debate will drive will further benefit the consumer.

I think this move of the Government’s is a “win-win” for ordinary people. If the financial services industry continues to drop its prices to see off the threat of collectivisation- the public win. If they don’t then collective pensions will take over – and the public will win.

This compares with the “lose-lose” we have seen over the past twenty years where the public have lost access to collective solutions and seen them replaced by financial products which are too expensive to be “fit for purpose”.

As a 52 year old who has saved hard most of his working life, I am personally very pleased with the way things are working out and look forward to seeing value created for myself and my generation.

And finally – thought for those consumers who can’t win

However I continue to worry for the generation of DC savers older than me who have been caught in an annuity trap form which there is no way out.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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