The 92-page report, called The Meaning of Life: An uncertain future for the traditional life company business model in the UK’s private sector pensions market, was recently published by Cass Business School’s Pensions Institute and predicted the virtual extinction of life companies.
Dr Debbie Harrison, visiting professor at the Pensions Institute and co-author of the report, said: “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.”
The report predicted a near doubling of assets under management in workplace pension schemes from £280bn to £550bn by 2020.
But 90 per cent of this amount will be held by 10 providers at most - instead of the current number of about 10 life companies with contract-based schemes and about 70 providers of master-trust schemes.
Major factors behind the predicted change include growth of powerful competitors such as Nest, NOW:Pensions and B&CE’s The People’s Pension, the end of sales commission and, by 2016, the consultancy charge for advisers that sell workplace schemes on behalf of life companies.
The report warns the government not to make any concessions for consultancy charging, since only an outright ban will ensure fair competition in the market.
The ABI’s director for long-term savings policy, Dr Yvonne Braun, said: “The long-term savings market constantly evolves and adapts to change, and providers’ response to pension freedoms highlights this.
“The interests of pension scheme members are a top priority for the industry when dealing with change.”
The report also claims that a change to Isa-style tax relief for pensions would further damage the traditional life company business model by removing the need for life company pension wrappers.
Ian Lowes, managing director of Newcastle-based Lowes Financial Management, said: “There is always going to be rationalisation within any business sector within a certain amount of time, so as such the conclusion is logical.
“Certainly, I can see the threat to the traditional life company model posed by such organisations as Nest. Hopefully, the change will result In mergers and acquisitions rather than company failures.”