HSBC’s drive into the corporate pension area brings a new perspective to the debate on corporate wrap.
Some life industry players have been spending small fortunes on wraps for the work- place but HSBC’s emergence in group pensions highlights an alternative solution that some employees will find attractive.
Pension providers have hundreds of thousands of clients through group pensions and numbers are set to soar with auto-enrolment, so it is no surprise they want to create a marketplace for financial services in the workplace.
Enter HSBC, with big ambitions in aiming to become a major group pension player within the next five years.
You might think anyone with such aspirations would be building a corporate wrap – virtually everyone else in the sector is. But the drivers for the banks are completely different.
Why create in the workplace what you already have in the bank? HSBC has 16 million customers in the UK, so one in four people in any pension scheme it takes on is already its banking customer. Its technol- ogy already allows people who are both bank customers and group or individual pension customers to see their pension valuations online next to their current account, Isa and other products. They can access it on mobile phones or computers.
Unlike life office corporate wraps, banks do not have the problem of getting consumers to go to their websites. Once people figure out online banking, they use it all the time.
This is not to say HSBC’s principal aim in aiming at workplace pensions is increasing its personal banking numbers. Its primary motivation is the sheer size of that market, which it puts at over £2trn on 2009 figures.
Life offices will claim they bring a greater level of employee engagement. The bank is offering a bank portal but the life office can offer an employer portal.
As it is the employer which is setting up the scheme and paying perhaps half the contributions, it will want the credit for doing so. A corporate wrap in the employer’s livery gives that.
But does an employee feel more engaged with their employer through a rich experience of an employer-branded corporate wrap he or she accesses sometimes rather than through seeing the balance on their workplace pension whenever they do online banking. Is there even room for the intermediary’s brand to get in on the act?
Another factor in the mix is the established need for advice, which will be even thinner on the ground after the RDR.
Scottish Widows has done research that shows a substantial majority of employees see their employer as the most trustworthy source of financial advice.
Banks might counter that staff do not want their employers to know how much money they have, or owe, so will shy away from holding all their information on an employer site. Corporate wrap providers are alive to this issue and are looking to mitigate its effects.
No one knows which channel will win out. Given the low technological base here relative to other countries, various tech models can achieve success for years without a dominant force emerging. Years down the line, we may even get to the stage where life offices owned by banks may see current account and pension data brought together. Such an outcome might cause internal ructions between different profit centres within businesses but isn’t that what the bancassurance model is supposed to be?
John Greenwood is editor of Corporate Adviser