Pensions entering no-man’s land

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We are in an unprecedented situation. We now have around 1,000,000 employers participating in workplace pensions operated either under trust or contract by a small group of providers (with a long tail).

I think it highly unlikely that more than a handful of these providers are in trouble , the majority of the small master trusts are preparing themselves to be consolidated by those with deep pockets (the insurers) or big ambition (the non-insured master trusts + Peoples Pension).

I would number the providers who genuinely expect to be operating independently as at not more than ten. What this tells me is that there are around ten organisations serious about providing workplace pensions. Many will be running multiple offerings; Legal and General are already treating Smart pensions as their “Torro Rosso”, Aegon are taking a double bet having bought BlackRock and the market expects Scottish Widows to make an announcement over Zurich any day soon.  Smart and Peoples are openly acquisitive and NOW, BlueSky and Salvus aspire to be.

So we have the extraordinary prospect of having the vast majority of those 1m employers relying on the operators of a handful of operators. Equally unprecedented- neither these employers nor the millions of new savers have any advisers at all.

There are two schools of thought about the need for advice. Large employers have always assumed that their schemes should be advised but that staff can be looked after by their own trustees or by the insurers (who have devoted considerable resource to workplace education/selling). The large scheme school of thought supposes that internal resource will be enough.

The second school of thought, that which has prevailed among our various retail regulators since 1987, is that employees are not sufficiently educated to be left to their own devices and that small employers should be regarded as no better.

So far we have got by using what Share Action has described as the “triple default”. That means a uniform contribution rate, a uniform investment fund and a uniform recourse to advice/governance (non-advised).

This is fine so long as the sums in individual pots are sufficiently small and the contributions nugatory. However, turn up the heat on contributions and see the pots growing to meaningful amounts and the principal of Brownian motion applies. If your physics lessons are a distant memory, let me remind you. As molecules heat up, they bounce about and start jumping up and down. This causes a change in the state of the substance in which the molecules sit. So with workplace pensions.

The current un-advised and remotely governed state of workplace pensions is fit for current purpose. But it is not going to be right in three or four years time and even in a shorter time frame, many of the medium sized employers that staged 2014-16 will have to do some thinking.

Because my experience is that people will want answers to simple questions like “how is my pension doing?” and they do not want a bland assertion from a trustee or IGC that they are getting value for money. People will want some evidence, not just that the pension is working , but that it’s working at least as well as the alternatives.

People don’t expect to be winning the league every year but most would expect to be at least mid-table. If we do not see comparative information emerging then people will start making noise (angry molecules).

It strikes me that there is early mover advantage here. By which I mean that there is advantage for someone in creating a general utility that collects the various performance and cost feeds needed to create value for money scores and display the information in a single place.

This sounds simple enough but there is a more general problem which relates to independence. It does not sit well for providers such as NEST producing such performance tables. What is needed is an independent entity to take charge and distribute the performance utility at scale.

I have considered the various options, IFAs, accountants, the Pension Regulator. For varying reasons, none of these works. IFAs are busy doing other (important) things, accountants really don’t want to be seen as pension governance experts and the Pensions Regulator is decidedly awkward at these kind of things (See the choices pages on its website).

There is only one option that fits the bill and that’s the software companies that deliver the payroll and accounting software to SMEs. They are principally Sage (which has around half the private market, IRIS, Moneysoft, Star, Able, Qtac, Xero, myPAye, Inuit, and a long tail. There is also a smaller opportunity for the high-end payrolls (Cintra, SDworx, MoorePay, MHR, Northgate etc.

The opportunity is with these organisations who have a one off opportunity to create partnerships with organisations able to deliver performance analytics, independent employer and member helplines and switching facilities.

If any strategists within the payroll software organisations are reading this, they might want to contact me with some more information. I can be reached at

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Pensions entering no-man’s land

  1. Phil Castle says:

    I would have thought Morningstar, Defaqto, FTAnalyttics, Trustnet etc would all have been alternatives and competitors for the payroll providers on this Henry?

  2. henry tapper says:

    They all have the capacity – but do they have the reach? All of these organisations have strong relationships with the IFA community, but the research I’m looking at suggests that most small employers are not employing IFAs to find this kind of information. I suspect that a new source will emerge. Whether these organisations can link to the distributors is open to question – it could be done – but it would mean them getting off their arses – I see no sign of that to date!

    Currently there is no way of comparing the performance of master trusts like NEST with GPP providers – that is crazy!

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