Do we need so many pension schemes?

pot holes

Ireland’s pension regulator wants to cut the number of corporate retirement plans in the country from 150,000 to 100 in a move that would put pressure on pension providers and asset managers to reduce fees.

So it’s reported in the FT and if it’s good for Ireland why wouldn’t it be good for the UK?

The UK Regulator has long stood for a smaller number of larger, better Governed pension schemes and stood against the proliferation of mastertrusts that is increasingly seen as a risk to the auto-enrolment project.

But there is little impulsion to bring schemes together, not least as there is no effecient way to wind-up occuational pension arrangements.

Reducing the barriers to scheme aggregation into the small number of large schemes is practically difficult but politically nearly impossible. Let’s look at these political barriers.

  1. The current status quo ensures that asset managers can continue to maintain high tariff fee agreements and not be squeezed. The small price of relationship management is a price worth paying for the high prices achieved selling to small schemes.
  2. The fractured governance structure in the UK suits consultants very we. Thousands of small institutional buyers ensures a constant flow of new business opportunities.
  3. The back office that supports small schemes including lawyers, acccountants, administrators and the various trade bodies providing trustees and employers with training, all feed off scheme proliferation.
  4. Larger employers still sense that their own occupational pension scheme  is preferable to contributing to someone else’s. Horror stories around section 75 debts being passed from failed to surviving employers contaminate the reputation of multi-employer schemes.

But things are changing, not least because of the success of the DC mastertrust which has shown that employers can benefit from economies of scale and improved governance without abandoning the trust based approach on which our occupational pension framework is grounded.

The principal of one scheme per employer is being reduced not just by mastertrusts but by the improving quality of contract based workplace pensions, now independently governed by IGCs and GAA’s. Ironically , the security provided to members from the reserving and regulatory protections available to personal pension policyholders are beginning to make trust based DC benefits look the risky option.

If the Irish can do it, then pressure will mount on UK schemes. The Government has decided to prioritise the building of a pensions dashboard that can display information from a variety of sources through a digital portal- this is expected to be available by 2019. It is likely that feeds will be possible from large schemes who have the technology and resources to provide real-time information to information hubs. Smaller schemes may struggle to keep up.

If Big is Beautiful, as the Irish and British Regulators would have us believe, then scheme aggregation may be the first step towards “pot follows member”. We are already seeing increasing frustration from members of occupational pension schemes trying to manage their won pensions through a single pot.  Ultimately the pace of change will be driven by consumer pressure.

Consumer pressure did for annuities, could it do for the small scheme too?


About henry tapper

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