A dearth of new products
There is ‘freedom’ but little choice, making decisions more complex. With too few consumers seeking advice, sub-optimal decisions are being made by consumers which could damage their retirement provision.
A combination of both consolidation and divergence in the UK life and pensions market is having a major impact on the future health of the retirement income market with consumers set to suffer as a result. There is a dearth of new products that offer both flexibility and guaranteed income resulting in a potential crisis of provision and consumer protection within the retirement income market.
A fragmented approach to regulation
A fragmented approach to regulation in the UK by the government is undermining the spirit of pension saving. The current policy is giving with one hand (automatic enrolment and pensions freedoms), while taking away with the other (lifetime allowance, annual allowance and money purchase annual allowance), which conflicts with the policies of other OECD nations.
The life industry is bifurcating
The life industry is bifurcating with one group of companies retaining the traditional risk-based model and the other group is moving to an asset management structure, which is less capital intensive, in order to avoid the increased capital costs under Solvency II. This process is triggering faster industry consolidation but also limiting choice in the retirement market.
Life companies that remain have switched resources to the Bulk Purchase Annuity (BPA) market where buyouts and buy-ins are helping companies hedge the longevity risk in their pension schemes. While pricing has remained competitive, there are clear tensions between regulatory scrutiny and commercial decision making at life companies.
Technology
Technology is the key to scalability and achieving necessary critical mass on platforms. Many institutions have been building platforms but few have achieved the scale to be profitable.
The quality of platform systems is mixed and the technology lacks a coherent approach to industry data standards. The report recommends that current programmes, including the pensions dashboard, should look to replicate broader technology standards, such as those used in the Open Banking Project, which will transform and improve the customer experience.
Consolidation
Consolidation continues and is expected to accelerate over the next two years, as predicted. The 2015 report predicted that by 2020, 90% of auto-enrolment savings would be held as assets under management by a select group of financial institutions, with certain high street/household names withdrawing from the market. We have already witnessed considerable consolidation among life companies with overseas parents, as well as consolidation among some smaller master trusts.
