Pensions Institute predicts shrinking AE provider market

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Pensions Institute predicts shrinking AE provider market

By 2020, fewer than 10 providers will be in the ‘premier league’ of auto-enrolment scheme providers, according to new analysis from the Pensions Institute at Cass Business School.

They will control 90 per cent of total assets under management, which by that point are expected to almost double to £550bn, from £280bn at present.

The report predicted instability in the auto-enrolment market if the government and regulators do not dedicate resources to overseeing an anticipated spike in merger and acquisition activity, with a particular risk coming from sales of books of business by providers that pull out.

The Pensions Institute warned of a large number of exits from the small and medium-sized master-trust market, as under The Pension Regulator’s rules for master trusts, entry-level barriers are low, capital requirements are weak and member protection in the event of a provider’s failure default is unclear.

Dr Debbie Harrison, visiting professor at the Pensions Institute and co-author of the report, said that by 2020 several well-known life companies will no longer exist in their present form, or at all.

“Some will be bought wholesale by more competitive life companies, others will be sold-off piecemeal as a series of books of business, at this watershed in the long history of UK life companies, clarity of understanding of market conditions, together with a clear vision for the future, is essential for survival.”

Clive Bannister, chief executive of the Phoenix Group, which sponsored the research, admitted that some of the findings will be uncomfortable reading for life companies of open and closed books of business, but the industry needs to acknowledge and address them.

“Phoenix supports the authors’ call on the government, the regulators and the pensions industry to establish an open debate on the many issues raised in the report.”

The research also pointed out that an Isa-style tax relief system for pensions - one of the current consultation’s proposals - would remove the requirement for life-company pension ‘wrappers’ for contract-based DC schemes and plans, eliminating one of the few remaining benefits of the traditional life company business model.

Nathan Long, head of corporate pension research at Hargreaves Lansdown, said this introduces yet another item for employers to consider when picking their workplace pension.

He said: “Not only should they strive to use a provider that is at the top of the tree now, but will continue to be supportive to employees in the years to come.

“The forecasted changes could make it even harder for members to keep a track of what they have, who with and crucially how much they will have to live on in retirement.’

On Friday (4 December) at 12pm FTAdviser will be broadcasting our latest On Air educational webinar, focusing on automatic enrolment.

Ahead of the debate, FTAdviser is asking advisers to send us any questions which you would like to put to our expert panel. Make sure you shape this debate by emailing emma.hughes@ft.com or tweet using the hastag #FTAOnAir.

peter.walker@ft.com