There is a very real chance that millions of personal pensions set up to comply with auto-enrolment will become unloved deferred small pots as their employers switch to participating in master trusts and GPP providers start to consider the GPP structure as “legacy”.
There are a number of reason why this might happen
Regulatory – if you are in a GPP the contract is between the saver and the provider of services (typically an insurer but also a non-insured SIPP such as Hargreaves Lansdown). Member communications are treated as financial promotions and subject to FCA rules, including the consumer duty. This makes it harder for large consultancies who advise on workplace pensions, to involve themselves at member level without giving advice.
Transferability – consolidation is the name of the game and the only thing that consultants and employers can control with a GPP is the ongoing flow of new contributions. While most insurers have come expert in moving active members’ deferred pots from a GPP to their master trust, these “sweeps” do not tend to cover deferred members. If a “sweep” involves moving members away from an insurer to a new provider’s master trust further issues arise as any “bulk transfer” involves negotiations between different commercial interests. All transfers require member consent, this is not the case for transfers between master trusts.
Commerciality – the issuance of policy documents and the maintenance of personal contracts make GPPs more expensive to run than holding the equivalent members in a master trust. This extra expense is not rewarded. There is no clamour from members to have their own pot and employers find they are disadvantaged in price negotiations with master trusts if they cannot leverage the value of deferred member pots.
Collectivity Workplace GPPs are looking distinctly unloved and with talk of a new decumulation regime for master trusts working on a collective rather than individual basis, the strategic direction for larger employers is towards multi employer trust based arrangements that can manage member decision making by default. The investment pathways, made available for non-advised GPP savers have not attracted support from employers, consultants and most importantly – savers taking retirement decisions
Changes in the advisory market – last but not least, the market among corporate financial advisers to offer GPP services has dwindled. Many large IFA networks have more or less moved out of “workplace” advice and the focus is very much on developing retail rather than corporate arrangements. The Retail Distribution Review, the banning of consultancy charging and the growth in advisory fund platforms has made the workplace GPP a marginal product, very few are being set up and many which were set up on an advised basis are no longer so.
Pricing ; the primary driver for employers actively reviewing their workplace pensions is to reduce the cost to members of what is seen as a commoditised product – the accumulation of money in DC pots. For all the reasons above, the GPP is becoming, pot for pot, more expensive than the master trust and since GPPs struggle to show “value” in other ways, they are being considered as second class and even “legacy” products.
While the bulk of the Government and Industry’s small pot problem comes from newly enrolled members of master trust whose contributions come from jobs that barely qualify them as “workers”, there is a secondary issue for GPPs, many of which were set up prior to auto-enrolment and now contain more deferred than active members. Transferring a workplace personal pension on an individual basis is an increasingly fraught business with many people who try finding themselves referred to the Money and Pension Service after red or amber flags have been thrown by ceding administrators.
This is not necessarily, protectionism from ceding arrangements, the rules laid down for transfers were established to protect savers from being scammed. Since small pots are generally transferred on a non-advised basis, the use of discretion is limited. Stories of people finding their pots stranded when they try to move them make the headlines, what don’t make the headlines are the millions of pots which aren’t moving, for want of advice and an easy consolidation mechanism.
The threat of GPPs becoming second class “legacy” products is very real. Legal & General, Aviva, Scottish Widows, Aegon, Standard Life and Fidelity all run master trusts and GPPs and all are finding themselves competing for new business with their master trusts – not their GPPs. Among the workplace pension providers, only Royal London and Hargreaves Lansdown offer a GPP as their flagship workplace pension.
The worry, and this should be a particular worry for IGCs in particular, is that GPPs get consigned to “legacy” status in the way many AVC contracts have been. This typically means lower value for saver’s money for GPPs with less attention paid to product and service development.
The attention of the large consultancies who provide the bulk of support to employers and trustees with workplace pensions is elsewhere and the GPP is in danger of being left behind.