Consolidation – Darren Jefferson says it’s only just begun.

consolidateIt’s all around us, auto motive manufacturers, lawyers, employee benefit consultants, you name it.

The same reasons for the deal are usually given whether you believe them or not, ‘We complement each other really well’ ‘it will allow us to enter new markets”. As we see the new authorisation regime looming in the DC master trust world I  immediately thought of a new consolidation market.

Too date we haven’t seen much in the way of consolidation here. The TPR reckon there is over 70 DC master trusts in operation, all of different shapes, sizes, target markets and governance standards.

We’ve seen a few fines handed out over recent months but this market is to big for them to manage, enter the authorisation process. Is it the TPRs back door way of taking out some of the smaller players that are keeping them awake at night? You dig a little deeper into some of the numbers and you ask the question ‘why would you?’

The authorisation process will cost a significant amount when you factor in all the adviser, trustee, audit costs, working capital and some of these trusts average contributions are less than £50 with corresponding low fund values. I haven’t done any detailed calculations  (I’m sure someone has..) but as someone running their own business this does not make commercial sense.

I spoke to someone recently who was heavily involved in this space and their view was scale is the only way to make money at least in the AE market. A number of the large EBCs have launched MTs and I expect they will complete the authorisation process and keep going, at least in the short term unless a decision is taken that this no longer sits with their core values and growth objectives.

I appreciate these trusts were not aiming for pure AE business but have they been as successful as they anticipated? If you strip out their own staff scheme that ceded the trust maybe not.

So are we going to see a number of these smaller and even mid sized trusts undergo a spring clean and do a deal with the bigger boys, effectively a way to stop haemorrhaging cash and help the TPR achieve its goal?

Time will tell…

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Consolidation – Darren Jefferson says it’s only just begun.

  1. There is no doubt in my mind that the TPR’s present position is to dictate the market to enable the number of providers to one which they have the resources to manage. I could say a whole lot more about TPR’s behaviour to Master Trusts but that would be the equivalent of wailing at the moon.

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