After four or five years of questions about corporate wraps, several answers are finally starting to emerge. While a number of life offices are offering or plan to offer their version of the service, retail wrap platforms are viewed as having the potential to do so. The offerings and planned offerings vary, serving different parts of the market, or for the most ambitious, the majority of it.
Some are heavily based on asset and savings management, while others promise a broader opportunity for engagement with employees and members.
How corporate wraps integrate with flex benefits and benefits management systems is also up for debate. But most life offices say they have designed modular systems that can bolt on or at least exist in parallel with a benefits platform.
Jonathan Phillips, head of consultancy solutions for Bluefin Corporate Consulting, says: “The background is the technology and corporate wrap is now possible. They have their individual wraps and the underpinning technology is not hugely different. Converting that to something that might do the job in the workplace is not a huge leap.”
There is also talk that corporate wraps could support some life offices’ direct ambitions of cutting intermediaries, whether EBCs or IFAs, out of the picture.
However, all the life offices Corporate Adviser spoke to say their plans involve intermediaries. While Standard Life, despite the opinions of competitors, is adamant its corporate wrap strategy does not entail a shift to direct sales.
“One advantage of the corporate wrap is it helps employers think tactically about budget changes while also think long term and strategically about protection and pensions”
Life offices with ambitions in the corporate wrap area include Axa, Friends and L&G, with Scottish Widows in the midst of a launch and Standard committed to fully launching by the end of the year.
Hewitt senior consultant Andy Cheseldine says that if flex is how you distribute benefits, corporate wrap is what an employee uses in between the annual assessment. He argues that EBCs see the product more from the point of view of the HR director – and how to get maximum kudos for the employer from employees – with the focus on generic advice. IFAs will be more concerned with establishing funds under management on an individual basis which may move between employers, he argues.
Cheseldine says the wrap might contain all sorts of pensions, including contract- and trust-based, as well as other traditional benefits but he believes the corporate Isa is likely to be one of the most attractive components.
He points out that the extent of what will sit on the wrap may depend on what employees will allow an employer to have access to. The offer might be a contribution into a pension or a savings plan or to pay off debts, although the student loan is probably one of the few debts that employees will want employers to see.
“One advantage of the corporate wrap is it helps employers think tactically about budget changes while also thinking long term and strategically about protection and pensions,” he says.
“It is no coincidence it is largely the no commission paying life offices that are moving fastest”
Corporate advisers say that while employers are not asking for a ’corporate’ wrap per se, they are interested in providing services to their employees that may add up to one.
Definition
Phillips believes some of the awkwardness surrounding the exact definition of what providers are currently putting together is reflected in a reluctance to call it ’corporate wrap’ at all.
Summing up what he thinks is necessary for such a service, Phillips says: “It is where you offer different tax wrappers, and maybe tools that enable someone to look across their plans and X-ray through. Savings aren’t all pensions. If we believe people aren’t in love with pensions anymore, we want a simple cost effective substitute and if you are a company that is into choice, it is a fair bet to say the company that is into corporate wrap would also be into flex.”
Legal & General managing director, workplace savings, Tony Filbin agrees and says much of this drive is from big companies.
He says: “The demand is coming from larger quoted companies. In the old days you had pensions in one place, shares in another place. The recent development with higher earners on pensions has brought that into sharper focus. Pensions may not be the best way for saving for everyone. We see it as having a wide choice of product wrappers, to let employees arbitrage between their savings. There are tools and online services. At the heart is a choice of tax wrapper.”
L&G has a corporate Sipp, a single stock Isa that is important for firms with maturing SAYE schemes and a corporate Isa. E-furbs are also on the radar.
“The payroll connection is key”, he says. “And a discount retail range recognising some bulk buying. A lot of employers also want to know there is risk management and governance around the funds.”
Corporate wrap versus benefits portal
How existing benefits portals interact with corporate wrap, and whether they compete or work in conjunction with each other, will have a big influence on take-up.
Benefits technology firm Staffcare CEO Philip Hollingdale has written a white paper on the issue and extols the benefits of linking a corporate wrap service to flexible benefits services.
He freely admits it is in his interests to say this but believes the arguments are compelling.
He says: “The solution is a platform focused on pensions and savings for the workplace. In simple terms, it takes the existing retail platform and brings that functionality to the workplace. We see it fitting with benefits management. It makes sense but to make it appeal to the employer you have got to help them more widely, not just pensions and savings, but broader benefits. We see enormous potential.”
However, Hollingdale claims that no-one has quite cracked it yet although some providers would now dispute that.
“Nobody has a deliverable solution, and as a firm, we’ve been exposed to most of what is out there. Nobody has got a complete end to end solution but we know there are people coming to market,” he adds.
Hollingdale also believes that retail wraps ought to enter the market. “They need to build a more consumer friendly front end. But they are in a good position, they have the distribution, but they are the least aware of the opportunity.”
CWC senior partner Clive Waller, who runs a retail wrap consultancy, argues that the market hasn’t quite got its head round what is required.
He says he has heard talk of corporate wraps only wanting to work with one provider and giving one route to pension but says this is entirely the wrong approach.
“They need to stop talking only about members or employees. They need to talk about people, the way people move around at the moment. If you can’t do legacy, when people have bits of savings and bits of DC everywhere, what is the point of doing it?” Phillips believes market developments will be driven both by employers and by life offices offering the service. In the case of the former, it may, ironically, be due to Government hostility to pensions where a corporate wrap may offer access to alternative savings benefits.
He says: “Employers may be driven by the budget changes which create a different frame of mind at the top table. Once people at the top start feeling that, it trickles down. Some people don’t want to tie up their money with pensions. There is a desire among companies that you should spend money on something your employee values.
“That is the demand push. The supply push sees Friends Provident, Standard Life, Scottish Widows seeing traditional business under strain. They are looking to reinvent themselves, to have new model businesses. They want it to take it off. When two or three build it some of the rest will build it too.”
Among the sceptics is Thomsons Online Benefits’ chief executive Michael Whitfield.
He says: “It is no coincidence it is largely the no commission paying life offices that are moving fastest. We see it as a defensive move, pre and post RDR.”
First to market
Whatever their motives, life offices are launching their services. Scottish Widows’ wrap has been live since January, but is launching this month.
Head of marketing and communications, corporate pensions, Ann Flynn stresses that this is phase one.
Known as “My Money Works”, it will offer pensions, savings, allow asset allocations and life-styling and provide information on retirement income but the emphasis of the service will be to understand what employees want.
Flynn says: “It is important to understand what it is. Some people are launching employee benefit platforms for all the asset-based products. Others like us are looking at it as an engagement piece, to get people thinking more carefully about employee benefits and financial planning. We have spent the past two years working on this. It is very much based on customer insight and in depth research with employers, employees and advisers.
Flynn says employee thinking is based on need so Widows is taking a needs-based approach.
“A lot of the work is on what the interface looks like. It is important it has employer branding, brings benefits, and can consider other investments and holdings. For the employer it is about reminding those taking their benefits of the value on offer” she says.
Flynn says people are nervous about investment choice, and that it is no surprise that most people invest in a default fund. That is fine providing it has been designed with people’s needs at the forefront of the provider’s mind.
This will be more important with the move from trust-based pensions continues.
Standard Life is a little more tight-lipped than its competitors but says this is because much of its wrap is still in development.
Head of corporate strategy and proposition Jamie Jenkins says it will bring together Standard’s pensions, Isa savings and maybe non Isa and wrap developments. It is planning an E-furb product too. Its position has been strengthened by its purchase in 2008 of the flex benefit technology firm Vebnet but it insists what it develops will not be to the exclusion of any existing intermediary relationships.
He says: “There is no intention to change our current strategy. We have a great franchise with employee benefits consultants and IFAs. We have just bought support services firm Threesixty. Having said that, we have a direct capability too.”
He says Standard talks a lot about the employee experience. Plans are likely to have a corporate adviser or IFA advising the employer but a lot of employee connections are direct offer. He thinks that may have led to the speculation.
Friends Provident has launched a corporate investment platform to trustees and EBCs as step one in its corporate strategy in March this year, offering services such as funds, blending and rebalancing.
Some people don’t want to tie up their money with pensions. There is a desire among companies that you should spend money on something your employee values
Friends Provident strategy and risk manager for the corporate team, Dominic Fryer says: “Standard Life is going direct, but we will be deploying our corporate wrap with our key distributors. We have to get very close to what employers want. We could deploy this in a number of ways that offer value to customers. For the right clients you might provide a best of breed service. You may gap fill with risk benefits and PMI.”
By and large the entry of retail wrap providers has not got off the ground.
Novia chief executive Bill Vasilieff says his firm considered the move but ruled it out and says the IT build was very significant.
Life offices are more cocksure
Filbin says: “What life offices have got is an industrial scale premium collection capability, from the payroll into the pension or the Isa. The newer competitors don’t have the premium collection capability. I think we have the specialist skills. It isn’t possible to provide every part of the equation.”
RDR and auto-enrolment
Most providers believe that the RDR is simply something that will have to addressed at the level of product and that is it therefore not the main focus for corporate wrap development, simply something that has to be taken into account when employers consider pensions.
“What any manufacturer will be making sure is that we have the flexibility to recognise any charging structure the client wants,” says Filbin. As for any threat from Nest, since the announcement of a 2 per cent contribution charge, many commentators believe that the competitive threat from the Government-backed pension is receding. Corporate wrap may help firms deal with auto-enrolment better though.
“This is partly in readiness for Nest. Some are using corporate wrap as a differentiator. It is partly in readiness and partly an alternative,” Hollingdale says.
Jenkins says: “We do think it is a different market. However a corporate wrap should help employers around auto-enrolment.”
There are sceptics however. Cheseldine believes that eight or nine players have plans but that there is only room for three or four.
Whitfield on the other hand simply does not see the demand. He believes that life offices will not want to offer full open architecture which employers will demand, because only more closed architecture will pay for the platforms. That is not what employers will want and not what the best payroll and benefits management systems give them. Among other things, they want to avoid human error and another software system will be viewed as complicating things.
“You can’t sell this in isolation. It is yet another piece of software. That’s my take without the emotion. It is destined to fail. It doesn’t have the right functionality or critical mass.”