The National Association of Pension Funds (NAPF) investment conference in Edinburgh last month focused on issues of scale in defined contribution (DC) schemes. Chairman Mark Hyde Harrison once again renewed his call for the launch of ‘super trusts' - predicting that up to six of these larger vehicles could be launched - in an effort to establish the benefits of scale in place in the Netherlands and Australia.
Hyde Harrison argued that current trust-based occupational schemes would be unable to keep step with super trusts, which would outperform the smaller schemes in areas of governance, benefit certainty and value for money.
Instead, he predicted the UK Pensions Regulator would seek to encourage these super trusts when granted new powers. "The regulator might well get [the] power [to say] ‘you've got to meet these standards, and if you can't, you've got to transfer your benefits over to one of these super trusts, where member benefits are going to be well looked after'," he told delegates.
He saw the new super trusts as being "totally aligned" with member needs by virtue of their legal status, completely independent from a commercial provider seeking profit. Hyde Harrison predicted further benefits stemming from this considerable market consolidation, with several thousand DC schemes currently operating in the UK.
"These large DC pension vehicles will be able to build what their members need," the former chief executive of the Barclays UK Retirement Fund said, adding that this would turn the table on an asset management industry that had previously approached the pension market with a new product, rather than vice versa.
"And they are going to enable DC to become institutional rather than retail," he predicted, adding that, if the funds remained in retail hands, it would produce "much worse" outcomes than if the opposite were true.
Hyde Harrison's ideas were backed up by former Australian regulator Jeremy Cooper, chair of a recent review of the Superannuation system in Australia that submitted a report to the federal government in 2010.
Cooper referenced changes to the regulator's power in Australia that would see it work on annual ‘scale health checks' with all super funds. Those that could not offer value for money would be faced with "fairly uncomfortable discussions", he said.
The Australian also ventured a guess at how auto-enrolment would progress in the UK. "Let's face it, auto-enrolment in time will look so like compulsion it probably will be compulsion," he said, predicting that the country would end with similar rules to his home country, where compulsion was introduced two decades ago.
Pension funds were also offered a glimpse of the NAPF's Pension Infrastructure Platform (PIP), the result of a memorandum of understanding between the organisation, the Pension Protection Fund and the UK Treasury to attract as much as £20bn (€15.5bn) in pension assets towards a £200bn infrastructure pipeline.
The project, under development since last year, was still in flux, and neither the NAPF's chief executive Joanne Segars or her PPF counterpart Alan Rubenstein could offer much detail. They said the PIP would probably be launched next January, with initial capital of £1bn (€1.2bn) from as many as a dozen pension funds, with a further £1bn in investment attracted following the launch.
Neither would be drawn on the fee structure under consideration, only saying that, while the Treasury-backed Infrastructure UK may have implied a 0.5% fee, the PIP was separate from the government, with Segars tersely adding that it was "up to the PIP to discuss fees", not IUK head Geoffrey Spence.
When asked why such a project had only come at a time when infrastructure had emerged as a politically sensitive subject, she urged the industry to focus on the present, rather than the past.
Rubenstein meanwhile shed some light on the PIP's potential investment targets. Asked about the risk of investing in Scottish infrastructure with an independence referendum proposed for late 2014, he said there were many projects in the National Infrastructure Plan - covering the UK - that would be of interest.
"We will look at infrastructure mainly in the UK, and we will look to invest with no construction risk," he said. "The managers of the fund will decide what's a good opportunity and what's not."