Salvus in talks to acquire three rival pension schemes

Salvus in talks to acquire three rival pension schemes

Workplace pension provider Salvus Master Trust is in talks with three companies to take on their master trusts as consolidation in the sector is gathering pace.

Graham Peacock, managing director of Salvus, told FTAdviser that the provider is in negotiations that “haven’t been able to reach their commercial scale”.

He said: “These [schemes] are from large institutional organisations that are just saying that this [managing a master trust] is too difficult, too time consuming, too expensive.

“They said ‘will you take it off our hands and give us dedicated terms into writing new business going forward’.”

He declined, however, to reveal the name of the schemes until negotiations are concluded.

The consolidation on master trusts is poised to increase after the government legislates on defined contribution (DC) bulk transfers, as schemes will be able to transfer their members’ pensions without consent.

With new master trust regulations poised to come into force in October next year, which will bring new capital adequacy rules to the sector, many smaller players will be looking to exit the market, according to pension experts.

Under the new rules, master trusts will have to hold enough capital to cover costs in the worst-case scenario, such as costs of transferring to another scheme or of winding up, without charging members. 

Which means that there will be a window of seven months in which schemes will be looking to sell their business or merge with bigger players.

According to Mr Peacock, the schemes Salvus is in talks with are multi-employer master trusts that don't want to develop this activity further.

He said: “They want to exit, and leave somebody reliable to look after [the scheme].

“We might be relatively new in the master trust market, but [our parent firm] Goddard Perry has been administrating pensions for 32 years, so we are well established in that regard.”

The first deal should be completed in the first quarter of 2018, Mr Peacock said, as the sponsoring company is “not particularly interested in going in their new fiscal year with the scheme on their books”.

In the second case, there are two options on the table: either taking over the master trust or Salvus parent company becoming a third-party administrator of the scheme, he said.

The third deal is “still early in negotiations, so it might not happen until summer next year,” Mr Peacock added.

For Nathan Long, senior pensions analyst at Hargreaves Lansdown, “there is need for the number of master trust providers to shrink”.

He said: “There are some great providers out there, but plenty that are too small, offering insufficient protection for members in the event of wind-up.”

But even if Mr Long considers consolidation to be a good thing, it is “important to be mindful of the issues that arise when two become one”.

He said: “Administration systems rarely unify without member disruption when providers merge.