It’s little commented upon, but there are two types of workplace master trust in the UK. The first type is the one we think of when we consider auto-enrolment, Nest , Peoples Pension, NOW and Smart, trusts that rely on payroll contributions for organic growth and through buying up smaller rivals for inorganic growth. Nest is of course provides a longstop for employers who are comfortable to leave matters to an arms length Government body.
The second type of master trust, of which WTW’s Lifesight is the primary example, is a trust that enjoys “second mover advantage”, enjoying growth through the consolidation of well-funded occupational DC schemes which cannot justify their operational expenses by way of value to members. Most of the large insurers aspire to this model and compete for the opportunities through procurement exercises run by Employee Benefit Consultants. Many EBCs are also providers of these trusts and include the Nations Pension (XPS) the Aon Master Trust (Aon) and the Mercer Master Trust (Mercer). This model is a kind of fiduciary management service where you buy into the expertise of the consultant as a part of the value proposition.
HSBC are late to the party. Unlike Lloyds, who bought Scottish Widows partly to have access to the spoils of auto-enrolment, HSBC have sat on the sidelines through its staging , licking its wounds after the failure of HSBC Life, an aborted attempt to create a workplace personal pension that was an onmishambles. It’s worth noting that none of the retail banks have yet to leverage their relationships with small employers through what used to be called Bank assurance. Despite this being one of the early predictions from strategists , the banks have found little pension advantage in their brands, only HSBC has used its brand name to try to compete with the two established models.
The Bulldozer approach
I heard Alison Hatcher speak about her “value proposition” yesterday at the Pension Age Autumn Conference in a session which was advertised as “Shifting our perspective to evaluate member value now and for tomorrow”.
It was in practice a pitch for a third way to look at master trusts, one based on the needs of the 700,000 UK savers who each year reach that point when they want or need to stop spending and start saving. HSBC has done the maths and reckons we are losing £1.7bn a year when we put the forward gear into revers.
For Hatcher, who is CEO of HSBC’s Tomorrow Master Trust, the pitch is simple. HSBC can offer an apparatus which allows savers to drawdown from a default investment account at a cost of 0.35% pa compared to the 2.8% pa from an actively managed SIPP account , 2.4% from a passively managed SIPP and 1.35% from a rival master trust. When the target drawdown is 4% of funds, then these are meaningful savings.
But this approach is unlikely to win many friends other than with price conscious consumers. Those consultants who are not conflicted by running master trusts are opposed to price comparison (despite many procurement exercised ending up in a price auction). Trustees , looking to offload their liabilities to a commercial master trust find it hard to think past the good old days when they could wash their hands of a member at retirement (wishing them good luck buying an annuity). The post-retirement market is the last feeding ground for financial services providers which is not subject to price caps of VFM scrutiny. The whole market does not take kindly to the prospect of commoditisation.
The bulldozer approach has of course worked in the past. Vanguard have built a global reputation in this space, almost entirely on giving people a reliable product at a lower cost than can be achieved elsewhere. It was the approach that won Legal & General a lion’s share of the early stagers of auto-enrolment and it’s clear that if HSBC can get its message to market , there are many of consumers ready to listen.
Millwall and Brentford
When I used to do strategy, we used to call HSBC’s dilemma – “Millwall” – “no one likes us – we don’t care”.
But the idea we had for Milwall was that by becoming a community club and treating their fans nicely, they could become a force in the land. It hasn’t happened, Millwall remain a second rate club while the likes of Brentford and Fulham have stolen their thunder.
It is no coincidence that Pension Bee has teamed up with Brentford (the Bees) for marketing. Both have shown that by creating a loyal fan base, getting a good customer experience in place and having a sense of humour, they can compete at the highest level. How many master trusts have gone from £0 to £2.8bn under management since 2015?
The kind of positive disruption that works in football was displayed last season by Brentford recuperating Christian Eriksson. That’s the kind of play that keeps you in the premier league. Pension Bee has called out Legal & General for their half hearted approach to fossil fuels, by demanding and getting a Fossil Fuel fund for their customers, they have successfully deflected criticisms that they don’t run the ESG operation you would expect from Lloyds or HSBC.
In short it is easy to be agile and smart when you are small and much harder when you are HSBC – you may call yourself “the world’s favorite bank” but that doesn’t make you it.
“Shifting our perspective to evaluate member value now and for tomorrow”
The title of Alison Hatcher’s talk yesterday was all wrong, the idea alright.
The title is of course gobbledegook, an amalgam of headings on slides from management consultants past and present.
HSBCs message must be “we will provide bigger pots and better pensions – (and here’s how) ” or an equivalent.
Back testing of the strategies they have employed against those of their rivals should give evidence that had people saved with HSBC at their prices, they would have more money today than had they been with other work and non workplace pensions.
HSBC have either got this evidence or they need to get it, or they should pack up now. Because I see them getting precious little support from a suspicious consultancy base unless they can show the value they could give their members “tomorrow”.
Having spent God knows what on consultants and fancy-pants nudge technology, the bank will be looking for pay-back. HSBC need to be Vanguard, Pension Bee and more but they will only get to a point where they are the nation’s favorite pension , by telling it like it is.
Once we got past the headline, Alison Hatcher did tell it like it is, I look forward to hearing more.