Nico Aspinall had a conversation with me at yesterday’s Pension PlayPen coffee morning at which he likened occupational pensions to infants learning to ride a bike. The analogy was between walking with a life platform and cycling with a custody platform. The implication was that we’d get to where we wanted to go much quicker if we learned to ride the custody bike.
Nico did a great job but I was a little disappointed that we had relatively little audience participation. This may have been because I dominated the questioning and left too little space for others; nevertheless, it struck me that the conversation we were having – about the need for workplace pensions to outgrow life platforms, was tomorrow’s conversation – at least for the people not on the call.
So where are we now in terms of cycling profeciency?
The only workplace pension that has resolutely not used a life platform to date is NOW pensions and it is not a shining example of VFM for its 2m savers.
Nest is becoming less reliant on insurance as it starts to invest directly and lose its dependence on pooled fund structures.
Cushon is learning to run with Nest and is probably the most ambitious master trust in terms of its investment strategy (certainly relative to size). Smart is also moving away from a dependence on the insured platform and as Nico explained, while at People’s Pension he went some way to moving it to a custodial rather than a life platform.
There may be other workplace pensions loosening their dependence on insured solutions but they weren’t much in evidence on the call! The large insured master trusts are obviously using their own platforms and the consultancy master trusts seem to be following suit. L&G insure the assets of both its own £20bn master trusts and also the Lifesight £20bn + scheme.
Where are the economies of scale coming from (if not from price?)
One of the mantras of the VFM agenda is that economies of scale will emerge through consolidation and the largest master trusts tend to have got that way through consolidation (Nest and People’s being the exceptions).
Consolidators have tended to win new business on price and to have achieved this by adopting insured platforms that are scale able and can drive lower fees. No doubt this feeds through to better VFM but if all consolidation does is increase the flows into the tracking funds of State Street, BlackRock and LGIM, then consolidation hasn’t done much to diversify sources of return – let alone reflate the British economy.
There were two immediate sources of hope that life platforms could evolve to be more ambitious – one the slow (but I suspect sure) adoption of the LTAF as a life platform permitted link and secondly the capacity of platforms to evolve and provide innovation (Nico spoke of Mobius’ protected cell approach and its move towards a more hybrid approach where funds could be held in and outside Mobius’ life company). It would be useful to hear from Mobius ,LGIM and other life platforms why the ongoing popularity of life platforms continues.
The Government’s VFM consultation does not mention how the benefits of economies of scale are delivered and I suspect that Nico is going to have to spell his arguments out in detail to the DWP for them to be embedded in the master trust assurance framework.
Evolution not revolution …
Slow change is perhaps best -even if we muddle along at the moment
In time – I am sure that large master trusts and the largest single employer occupational schemes will need to have to explain the strategies that they employ to hold funds and assets outside of funds, on their investment platforms.
But for now , it feels we are at the beginning of a process that will take years to complete. Australia shows us a mature DC system where insurance is less prevalent and the transparency of direct ownership of custody platforms is more prevalent. Disintermediating DC schemes from insurance looks bound to be a trend but it doesn’t look like a trend that is moving with great urgency now.
You can watch the session here.