If automatic enrolment takes off in the UK in anywhere approaching the manner the superannuation system has in Australia, the prize for those that get it right will be immense.
Just how big a prize was made clear to me at a recent lunch I attended where Senator Nick Sherry, Australia’s key pension minister, talked about the situation Down Under.
Sherry, whose full job title is minister assisting on deregulation and public sector superannuation, has been involved in the development and oversight of Australia’s compulsory superannuation system for the last 20 years.
He explained that within three or four years, the super-subsidiaries of Australia’s banks will have more assets under management than the banks themselves.
Let’s not forget that Australia has some pretty big banks so for their pension subsidiaries to overtake them from a standing start, in a little over two decades, is astonishing.
By now most people in the financial services industry are sick of hearing the Australian model being held up as a blueprint for the future. And as AMP found out to its cost, what happens on one side of the globe does not necessarily come to pass on the other.
But Sherry’s comments got me thinking about what role our high street banks will play in the automatic enrolment scramble. Between them they have relationships with virtually every small business in the UK, yet none have declared a public interest in developing a model to service these businesses.
Will they come to the party late? From what I hear the direction of travel is in the opposite direction. And that is doubtless for exactly the same reason that no other provider has shown interest in these businesses to date – because they are very small on the whole and the cost of administering these schemes is higher than the charge that could reasonably be taken for doing so.
Even HSBC, which entered the market recently with its Workplace Retirement Services proposition, is only interested in bigger schemes.
This means the majority of these schemes will end up in Nest, which is only right and proper for economic reasons. But of the million or so employers that will have to set up new schemes before 2015, there are bound to be some worth having.
Lloyds has Scottish Widows and HSBC has Workplace Retirement Services. Barclays and RBS/NatWest are not known for their group pension propositions to date. However, NatWest alone has 850,000 small business relationships, so there is surely some gold to be mined there by the careful group pension prospector.
Sherry also explained that Australia now has only one main life insurer left that is not owned by a bank. That is not necessarily significant for the UK market as Basel III is expected to make bank ownership of insurers less, not more, likely in future. Banks have also been gradually looking to get back towards their core businesses anyway.
So where does that leave this opportunity?
Tie-ups between banks and life insurers with direct propositions seem likely in light of the retail distribution review. Auto-enrolment will probably just help them on their way.
High street banks currently not in the group pension market do not have the capability to get in quickly and as one former bancassurer executive put it to me recently, bankers are not interested in getting into the insurance business, they are just interested in lending money.
To suggest Widows will be bigger than Lloyds in 20 years’ time might be an extrapolation of the Aussie experience too far – but further tie-ups between providers and bankers look likely to be on the cards.