It is easy to say you are going to offer an auto-enrolment-compliant pension with low charges and high quality service but delivering it on those terms year after year is another matter.
B&CE and Now: Pensions are the two most high-profile entrants to corporate pensions and with about 50 master trusts across the market – and other players ramping up their offering in coming months – the sector is starting to look busy.
Advisers will welcome the extra choice and it is not impossible that a new player will emerge with a sustainable business model that challenges the established providers. But, as with the explosion of Sipp providers, advisers are going to want to look under the bonnet of new group pension providers.
However, parallels with the Sipp market should not be over-done. It is possible for a small Sipp provider to be profitable but scale is essential for the long-term delivery of the sort of low-cost pensions needed for auto-enrolment.
As Friends Life chief executive Andy Briggs says, there is little pension providers can do to differentiate themselves – the real differentiator is the quality of the execution.
Some will offer different investment solutions. Others will differ on charging structures and degrees of service. But the ability to maintain those charges and generate the profit needed to make a provider want to stay the course ultimately comes down to the efficiency with which the organisation can perform the basic administrative tasks of deducting contributions and allocating them to the right account. And that requires scale.
B&CE, the UK’s biggest stake-holder scheme, already has scale and a track record of delivering to the construction industry over many years. Now: Pensions’ parent ATP has more of a track record than anybody, having run the Danish state scheme for decades. It has group assets of £65bn and has delivered solid, consistent returns of 7.4 per cent a year for the past decade to its 4.7 million members.
However, its experience and scale does not extend to the UK operation it is partnering with Xafinity. Now: Pensions will have to be profitable as a standalone business if its Danish parent is to maintain interest over the long term.
Everyone knows Nest needs a couple of million members to be able to pay back its massive loan and maintain charging levels. Now: Pensions argues its business is scalable and does not need to be a big size.
Any new entrant faces a dilemma when it comes to marketing. The more you spend on marketing, the more you must recoup through charges. Now: Pensions plans to flip this argument around and some employers will buy that.
So will some fee-only advisers. Several I speak to welcome Now: Pensions’ transparent charging approach. They say that for any employer that does not want to have two schemes to be able to include higher-earners, Now: Pensions does the job.
Other advisers will not appreciate the contention on the ’Why choose us?’ page of Now: Pensions’ website that says UK retirees get around 50 per cent less income in retirement from their savings than those in Denmark, followed by a link to David Pitt-Watson’s hotly contested report for the RSA that regularly quotes AMCs of 1.5 per cent for UK pensions.
The opportunity of auto-enrolment is immense and many providers, new entrants or otherwise, will be able to get at least some business by going direct to employers. But advisers will want to take a closer look at the business plan before they are fully convinced.
John Greenwood is editor of Corporate Adviser