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Pensions minister warns scale push could damage competition

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Pensions minister Steve Webb has warned proposals to reduce the UK market to a small number of large scale schemes could damage competition.

Last month, Labour published a policy paper setting out plans to encourage the development of scale pension schemes in the UK. It argues that members of large trust-based schemes benefit from lower costs and better governance.

Speaking at the launch of the annual Scottish Widows UK pensions report in London this week, Webb warned the relentless pursuit of scale could diminish competition.

He said: “I can think of a market where there are half a dozen household name providers and few others, and that is the energy market. I am not sure that is the model I want for pensions.

“There are those who would like a few super trusts to take up 90 per cent of the market but you have to think about the implications that would have for competition.”

Webb also criticised the previous Labour government for proposing automatic enrolment without also introducing quality standards for defined contribution schemes.

He said: “I often feel like a bicycle repair man when it comes to auto-enrolment. Auto-enrolment was created but I am constantly dealing with the punctures in the tyres because the bike wasn’t made properly.

“How did any of us, and I was in Parliament at the time, allow people to be automatically enrolled into any old rubbish?”

Labour shadow pensions minister Gregg McClymont said: “At the moment we have a pension market where the smallest employers have to deal with a proliferation of complex products and complex choices.

“We need to get to a situation where there are simple, straightforward, scale products available in the market.”

Scottish Widows chief executive Toby Strauss said: “Purely commercially, it would suit us if there was greater scale in the market because we would get less competition.

“But in terms of having a vibrant, competitive market, there is a basic counter argument to scale about allowing firms to compete.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Mr Webb needs to decide what he wants – and stick to it.

    The push for scale is a direct result of the (government-led) downward pressure on charges. To get charges down, providers need to lower marginal costs. There’s 2 ways to do that, improving operational efficiency and increasing scale. Most providers have done as much as they can on the former and so the latter is the focus.

    Essentially, you can have 50bps products or lots of providers. You can’t have both. What’s it going to be, Mr Webb ?

  2. That’s a good point Eliot and lets not forget that operational efficiency has fallout namely the removal of several jobs pushing the infrastructure to breaking point which itself will make the now operationally efficient company implode under the imbalance of volume versus capacity.

    I see no reason why the market cant produce a 50bps proposition now that could be a “best fit” allowing more discerning punters to pay more and get more. Its like the car industry – want all the mod cons? No…..then pay market average, want ocelot lined seats and kylie Minogue singing your directions via the sat nav? Yes…..then pay more.

    Supply and demand dear Mr Webb.

  3. With all this growing uncertainty surrounding pensions in the UK people would be wise to ensure their employee pensions are up to date (or even start a pension!).

  4. A really interesting piece with some incredible stats! 2017 is not far off at all, but there is so much uncertainty surround pensions at the moment it’s wise for employers and employees alike to be on top of their auto-enrolment contributions.

    http://www.enrichbenefits.com/

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