PensionsAug 9 2016

AE giants look to buy struggling master trusts

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
AE giants look to buy struggling master trusts

Two of the biggest auto-enrolment providers in the UK have said they would be willing to acquire smaller master trusts which struggle to meet the upcoming capital adequacy requirements.

Now: Pensions and The People’s Pension have both told FTAdviser they are ready to takeover rivals with fewer members in the event they are unable to meet plannned new rules for master trusts, currently being considered by the Department for Work & Pensions.

However, other providers have indicated they would not look to acquire failing master trusts, suggesting consolidation may be limited to a handful of large specialist providers.

The government is set to introduce a new pensions bill into parliament in the autumn and, while no concrete details have yet been given, FTAdviser understands capital adequacy requirements will be a central feature of the new legislation.

The stricter rules are expected to force consolidation among small providers that entered the market when there were essentially no regulatory barriers to setting up a master trust.

Andy Tarrant, head of policy and government relations at B&CE, the parent organisation of The People’s Pension, told FTAdviser it was “happy to assist any other master trust which opts to exit the market”.

If we are aware that there is a master trust that appears unlikely to be viable, we may approach them. Andy Tarrant

He said the scheme’s approach to acquisition would be “mixed”, stating he was happy to be approached.

“Equally, if we are aware that there is a master trust that appears unlikely to be viable, we may approach them.”

However, he stressed the priority was to ensure “that the master trust brand is not damaged”.

Mr Tarrant predicted The Pensions Regulator would have a central role in winding up failing auto-enrolment schemes, similar to the Bank of England’s role in building society wind-ups.

“The new bill ought to give The Pensions Regulator powers to monitor schemes and to orchestrate rescues so that any defaults are orderly,” he said.

Now: Pensions’ director of communications Amy Mankelow also said the firm was open to acquiring smaller master trusts.

“We expect there to be some consolidation, and as one of the larger players we would be open to assisting some of them in consolidating,” she said.

With fewer than 50 employers and under £1m in assets under management, Wessex Pensions is one of the small master trusts being encouraged to consolidate.

Wessex Pensions co-director Daniel Parkin said his firm would only consider merging with a “like-minded” provider.

He told FTAdviser employers “loved” the personalised service Wessex Pensions provided, so this would have to remain in any merger.

Bluesky Pensions chief executive Paul Bannister, whose not-for-profit auto-enrolment master trust has £320m assets under management, said his firm would only consider merging if it was with a smaller master trust; but even then it was unlikely.

He added if a merger meant switching investments into a new scheme, that would be expensive. “Who is going to pay for that?”

Master trusts looking to be acquired would struggle, he argued, because “the reality is, there is no money in master trusts”.

Dave Lowe, head of corporate wealth propositions at Zurich, appeared to confirm this fear, stating that as a provider of auto-enrolment exclusively to large employers, “it wouldn’t be obvious that [acquiring struggling master trusts] would be something that we would do”.

However, he added: “There are master trusts that are sub-scale and will remain sub-scale.”

james.fernyhough@ft.com