Is a secondary market in auto-enrolment schemes developing? Scottish Widows corporate pensions relationship specialist Robert Cochran believes so, and it is gaining serious momentum. So what is fuelling this increasing market activity?
CA. How significant is the secondary auto-enrolment market right now?
RC. After a really slow start it’s really taken off. We have seen an exponential increase in tender activity over the last 12 months. We have probably received as many tender requests in January 2017 as in the whole of the first six months of 2016. Momentum has been building throughout H2 of 20.
CA. Why is this happening?
RC. There are a number of factors. M&A activity, triennial reviews, the changing landscape, employers changing adviser, the quality of propositions, appetite from individual trusts and better deals to be had on costs and charges.
CA. How is M&A activity impacting the auto-enrolment market.
RC. There is always a component the market that relates to mergers and activities activity that is an ever present. But there have been quite a few big deals at FTSE 250 level, mergers and demergers, where the employer needs to revisit their workplace pension scheme. Not many employers want to run multiple schemes and they want to make the best of their scale.
CA. How are triennial reviews fuelling the market?
RC. The triennial reviews of big schemes are leading to lots of questions being asked about what was put in place first time around. A lot of the time employers rushed to meet the deadline and did not get the optimal outcome as a result. They are now taking this opportunity to review the market. Many employers also had more than one entity with differing staging dates and providers – we are seeing these being consolidated into one scheme.
CA. Are regulatory and tax changes driving the secondary AE market?
RC. It is fair to say that many employers’ approach to workplace savings has changed. Compared to three years ago we now have pension freedoms and considerably more people who have been hit by the annual allowance. It is opening up the interest in broader workplace savings.
CA. What impact is the evolving employer/adviser dynamic having on the auto-enrolment market?
RC. fair bit of the change we are seeing is resulting from situations where the employer has changed their adviser. Today the customer is king. In the post Retail Distribution Review world, advisers have had to change their proposition and some employers are saying that they do not want to pay for their services. So a new adviser is being appointed and is going in and that can often lead to a review. We are also seeing a trend towards employers hiring advisers to do specific tasks, such as getting them to do the review, but then maybe stepping away when it comes to dealing with employees. This menu approach to Adviser fees is also leading to a greater emphasis on what the provider includes in their price – for example, presentations to employees may be offered by the provider rather than the employer paying an adviser for this.
CA. What other new themes are employers interested in and wanting to see in their workplace pension schemes?
RC. Employee engagement, financial wellness, governance support and access to digital services are all increasingly sought-after by employer and whilst we are not hearing it direct from employees – there is a demand from advisers and employers for broader workplace savings. So employers are asking whether the original scheme they have in place is appropriate if it does not score well in all these areas.
CA. How is the increased regulatory pressure on the occupational world impacting the auto-enrolment market?
We are definitely seeing increased appetite for review from individual trusts. As the duties on trustees have increased, so they been looking to move to master trusts or trustee buyouts and then contract-based schemes.
CA. How are charges impacting the market?
RC. Price is definitely another key factor behind the increased activity we are seeing. Prices have come down since schemes were put in place three years ago, partly down to the commission that was built into the old terms – they can’t go down forever, but for the moment there are cheaper deals to be had, and that is causing movement.