Pension stories are hard to find at this time of the year so the idea of Hargreaves Lansdown, M&G (Prudential) and Schroders ganging up to offer something genuinely different is not that odd – it is hard to see how any of these three are likely to prosper from the Pension Schemes Bill unless they can offer innovation.
I suspect that the commonality between these organisations as asset managers is that they are threatened by organisations like Nest and People’s with sufficient assets to invest directly or to buy into asset management as Nest have with IFM.
Emma Dunkley and Mary McDougall have to work hard without any named sources. The story hangs on a very powerful commercial reason for these three household names to do something;- the Department for Work and Pensions estimates the trust-based pensions market could grow from about £140bn in 2023 to about £420bn in 2030.
Undoubtedly, all three will be regretting backing the contract-based market (Hargreaves Lansdown) and brand names and no direct offering (M&G and Schroders). These organisations now have high overheads and a prospect of missing out on how the market is moving.
“If you look at the UK pensions landscape, it feels clear that master trusts are part of the future but it’s hard to make that argument for contract-based schemes,” said one person involved in the discussions.
But I suspect that the opportunities for what is now a new entrant do not lie in building up money but in helping people organise how they get money back, especially if the upper middle class can no longer look to their pension pot as an inheritable gem in the financial jewel case.
The FT cite the £10bn and £25bn asset management hurdles to be cleared in 2030 and 2035 but have been sold the hope that new entrants have
..the bill includes a “new entrant pathway relief” where the regulator might approve smaller schemes if they can demonstrate strong potential for growth and an ability to innovate.
There is scope for legacy pensions at the Pru, the contract based Vantage scheme of Hargreaves, Schroders brand as a private market manager and the staff schemes of all three behemoths to seed something new which might set it on its way.
There are still a lot of organisations who will regard these firms as “blue blood” but I would mark this down as an old school proposition unless it includes an emphasis on paying pensions. Here M&G have some experience having recently been focussing on the bulk purchase annuity market. A flex and fix model makes sense as an upmarket alternative to insurers and consultants master trusts and commercially the insurers and consultants hold the money.
What is not mentioned in this article is “the upside for consumers?”
Is there likely to be more income deriving from such a master trust? Will they launch a collective master trust delivering a genuinely new approach to value for member’s money? Will there be opportunities from a pension dashboard?
On the asset management side, can a breakthrough be made in accessing value locked in the private markets or will we simply see an opportunity to sell private market funds within LTAFs against the wealth management industry?
The FT also report this morning a continued appetite for private equity funds despite rejection of CVs and CV squared – the trick of private equity firms to maintain valuations at high levels.
A late summer space filler or a shift in the pensions market?
There has to be some substance to this story, the FT editors will not allow such a rumour to be floated without substance which means the co-operation of all three behemoths. But without any obvious reason for a new master trust, this looks like a bit of kite-flying from the asset managers.
I suggest they tell us where consumers can benefit from their proposals, then we can test whether there is “new entrant pathway relief“. I hope there is, there has been precious little consumer based offerings since the arrival of “freedom“.
