Savage life sector consolidation will create ‘premier league’ 01 December 2015

Massive consolidation will lead to a ‘premier league’ of between five and seven major providers as part of an uncertain future for traditional UK life business, a new report has predicted.

The Pensions Institute and Cass Business School’s ‘Meaning of Life’ report said defined contribution workplace pension scheme assets were expected to double by 2020 to £550bn (€712bn, $752bn), at which point about 90% of the assets will owned by this so-called ‘premier league’.

Massive consolidation in the auto-enrolment scheme provider market was “inevitable” and needed to be well-managed by the industry and regulators to avoid market instability, it said.

The Pensions Institute also said that further market disruption and confusion was in prospect if the UK Government announced plans in the March 2016 Budget to introduce an ISA-type tax treatment for pensions.

Fragmented approach

The report also argued the fragmented approach adopted by the Government and FCA had led to confusing overlaps and inconsistencies.

The two authors of the report are Debbie Harrison, Pensions Institute visiting professor, and David Blake, director of the Pensions Institute and professor of pension economics at Cass Business School.

They said a trend away from life company dominance as pension providers was particularly evident in the workplace scheme market, but also increasingly evident in the retail market for both accumulation and decumulation products.

“Taken as a whole, the changes in the DC market call into question the fundamental purpose of the traditional UK life company business model. The largest and, arguably, the most visibly successful life companies are restructuring in order to compete with a diverse range of challenger-providers.”

Several of these challenger-providers had already demonstrated the merits of alternative business models in the master-trust auto-enrolment market, they said, and had gained a significant market share at the expense of traditional life companies.

“As these challenger-providers move into the decumulation market – in which the historic distinction between ‘retail’ and ‘workplace’ will increasingly be recognised as an anachronism – life companies will find themselves beset on all sides”, they said.

Well-known life companies will no longer exist

By 2020, the report predicted that certain well-known life companies will no longer exist in their present form. The scenario here was that they will either be bought wholesale by a larger and more competitive life company, or they will be sold-off piecemeal as a series of books of business.

These books will include pre-2001 life-company policies, but also more recent workplace schemes, retail accumulation products, drawdown products, and annuities.

The Pensions Institute claims to be the first and only UK academic research centre focused on pensions issues.

By Mark Battersby, posted on the International Adviser website 30th November 2015.