The premium pension institution: So far so good?
The premium pension institution, or PPI, has survived its first season. Tim Burggraaf, a consultant at Mercer, weighs up its chances for making it to summer.
Almost a quarter has passed since the introduction of the premium pension institution (PPI). What have we seen in the first few months? An astonishing number of 25 PPIs under construction that Mercer is aware of. Although it still remains to be seen how many will actually see daylight (let alone how many will manage to survive the first few years), it seems the PPI is off to a good start.
It is quite interesting to see that potential suppliers come from very different backgrounds. First of all, as could be expected, local Dutch insurers are expected to provide a PPI. Their pitfall is that they provide old products in new boxes, which could ultimately ruin the PPI brand before it is actually launched. They will need to brush up their innovation skills rather sooner than later to keep their insurance portfolio well stocked.
Banks and asset managers thought they could play their game somewhat easier. They have been providing lean and mean banking products, but are now being confronted with the burden of pension administration, seeking out suitable suppliers that can help them to fill the gaps. That, in turn, is good news for pension administrators who are now considering bringing 'do-it-yourself' pension administration engines to the market that are available for anyone who is interested. We even see combinations of parties that offer a bundled solution that can also be bought piece by piece.
The big question, though, is 'who will buy?' Surely, we need supply before demand to some extent, but a market with solely suppliers, but no real demand, will die out. And there also is another issue. PPIs are vehicles that are essentially asset pools - the bigger the pool of assets, the more efficient (cheaper) the solution. A huge number of PPIs will in the end prove to be a not-so-efficient solution.
All in all, first indications are that spring is here for PPIs and that they have been planted fertile soil. Let's see how many survive until summer.
Tim Burggraaf is consultant at Mercer.