The Irish government recently proposed a system whereby a new Central Processing Authority (CPA) would be established, responsible for sourcing, on a competitive basis via an open tender, a maximum of four AE Registered Providers to provide a defined suite of retirement savings options.
The proposal is to enable providers engaging in the initiative to achieve scale quickly in Ireland’s considerably smaller market. Ireland has more than 800,000 people not saving enough for retirement, roughly half of whom would be automatically enrolled under the proposals.
Speaking at Barnett Waddingham’s DC conference in London yesterday, Leandro said that Ireland was looking to avoid some of the pitfalls that had been experienced in the UK, where scheme numbers have proliferated, only to be pushed down in number by regulatory action, and where the number of small pots is growing fast.
He said that the proposed approach of limiting the number of AE providers would guarantee scale quickly, relative to the size of the Irish market, but also cautioned that in Australia, where schemes have consolidated into behemoth funds only focused on profit, innovation has become virtually non-existent.
He argued that UK policymakers could in future decide to drive further consolidation amongst providers if the Irish approach is successful.
Leandro said: “Irish policymakers are proposing there should only be a limited number of providers that can receive contributions, to get to scale quickly. If the employer allows choice, the employee can get to choose which scheme they go into.
“If they don’t choose, then they have a carousel. It’s quite a neat system, and I wonder whether if that is introduced in Ireland, whether we could see something like it considered over here.
“But let’s be careful what we wish for. There could be unintended consequences of consolidation. I’ve been on two fact-finding trips to Australia I in 2014 and 2017. The first time we went the mantra was ‘not for profit’, later it was ‘profit for member’. On the second trip, we didn’t hear anything about innovation over there, even though it is sorely needed – when we asked why, they said ‘because there is no reward for doing so’. You have behemoth schemes in Australia, with net cash flow, so why innovate?
“They need innovation because people are drawing down too little. I wonder if we have a few behemoth schemes in the UK, will we lose focus on the member?
“Guy Opperman was talking last week about the need for scale, for schemes to be more efficient to administer.
“So what is the ideal of number of schemes? The conclusion I come to is it could be one.”