The group pension sector faces the seemingly contradictory situation where the number of providers looks set to grow while intermediary numbers are supposed to fall.
You do not have to look far to find predictions of falling numbers of group pension IFAs when commission is abolished by the retail distribution review. Yet at the same time, we have a string of potential new provider entrants casting a covetous eye towards the workplace.
There are a few traditional life offices upping their game in the corporate pension area – Zurich, for example – but the more novel development is the interest shown by operators who until now have focused on the retail sector.
Ascentric and Transact are both looking to launch group pensions as part of a wider corporate wrap proposition and Skandia is also believed to be examining the sector’s potential. Meanwhile, Steve Bee and Paul Hogarth’s Paradigm Pensions is under construction.
You could argue that the RDR is going to kill off much of the IFA interest in the group pension sector but what seems more likely is that we end up with a far more diverse market, with a wide range of offerings servicing a wide range of intermediaries. For many of them, group pensions may not be the core of their business but that does not mean it is not business worth doing.
What is less clear is what char-ging models will develop after the RDR. Margins are tighter on group pensions than on individual retail business, which makes getting scale important.
Traditional players will doubtless argue that new entrants will struggle to get that scale because newcomers will not be able to persuade the big intermediaries to come on board. If even a provider with the track record, scale, systems and service of Friends Provident can be taken off-panel on the grounds of questions over its long-term presence in the market (it is now back on-panel, of course, and its quarterly business figures have just shown new business revenues starting to creep back up), what chance do retail platforms have of persuading today’s pension intermediaries they are in it for the long haul?
That is probably correct when talking about the 50 or so top employee benefits consultants and corporate IFAs who make up the lion’s share of UK life office group pension business. The complexities of the payroll systems of the nation’s employers and the impact that has on workplace pension administration are not to be taken on lightly. Consequently, I would be surprised if any big EBC or corporate IFA would put big schemes with a new group pension provider until it has a track record of many years – although the notable exception to that may prove to be Nest.
But that is not to say others coming into the market cannot thrive. If, as an intermediary, your business is already engaged with a platform, then it is not a massive psychological leap to add new group pension business.
As Steve Bee points out, with a million new schemes to be put in place between now and 2016, some of that business is undoubtedly going to filter through the tens of thousands of IFAs across the country.
Predictions from big Sipp providers that smaller operators would simply fall away have not materialised and I expect something similar to happen in the group pension sector. Indeed, small Sipp providers themselves may become more active in the group Sipp sector.
What is clear is that an increasing number of players are eyeing the workplace as a lucrative source of revenue both before and after 2012. New players will bring in new ideas, which has to be a good thing. Let us hope there are still as many intermediaries to enjoy this more diverse marketplace.
John Greenwood is editor of Corporate Adviser