UK regulator predicts growth in multi-employer pension schemes
UK - The UK Pensions Regulator (TPR) is forecasting an increase in the number of multi-employer pension funds as employers opt for schemes they perceive to be "large, durable, low-cost" and strongly governed.
Automatic enrolment, which the Department for Work and Pensions believes will increase pensions contributions annually by £9bn (€10.6bn) from 2020, will begin later this year for 400 schemes sponsored by large employers with collective assets under management of £22.9bn.
But in a report published earlier this week, the regulator suggested the beneficiaries would likely be new entrants to a multi-employer market currently dominated by 30 industry-wide and 29 non-associated defined contribution pension funds with collective assets under management of £4.3bn.
Existing industry-wide schemes include the £33bn Universities Superannuation Scheme and £17bn Railpen railway industry scheme.
However, TPR's report distinguished between two further categories: Financial Services Authority (FSA)-regulated schemes run by insurers and "commercial arrangements that are not subject to the same prudential standards or prudential regulation as insurance providers".
It warned of low market barriers to entry to the latter, "given the potential growth in assets at risk" and significant variation in governance structures.
Moreover, despite potentially offering small and medium-sized employers economies of scale comparable with those in schemes run by large employers, few existing multi-employer schemes have so far achieved sufficient scale to do so.
"There is a possibility of market saturation and, in the event that economies of scale are not achieved, there may be an increase in consolidation activity," the report said, raising regulatory concerns over the schemes' durability.
But Logan Anderson, head of customer relations at the multi-employer Pensions Trust, defended the model.
"Setting up your own trustee is expensive and out of the reach of most employers," he said.
"Selecting your own administrator and investment manager is also time consuming and requires expertise. If you opt for a multi-employer scheme with a trustee acting on behalf of the members of all the employers, it saves employers governance time and money."
A survey published last month by the Association of Consulting Actuaries suggested an increase in the number of multi-employer products in the UK could cut into the market for the National Employment Savings Trust (NEST), with a significant majority of those polled favouring new or existing schemes over the default scheme.
Among entrants into the UK market created specifically to compete with NEST is ATP-backed multi-employer NOW Pensions.
The report published earlier this week appeared to acknowledge the finding from the introduction of auto-enrolment in other markets that most pension-holders are neither engaged nor financially literate.
Jeremy Cooper, who chaired the Australian Super System Review that led to auto-enrolment in that market, has advised would-be emulators to factor in pension-holder lethargy as a defining factor.
In the absence of engagement and capability, according to TPR's report, it would be up to the regulator to make certain that providers properly managed downside risks and generated sufficient scale to ensure efficiency and value for money.