A ‘premier league’ of life companies will be created by ‘massive’ consolidation in the market according to a major pensions report.
According to a report by the Pensions Institute a raft of recent reforms and changes to the market, such as the retail distribution review, auto-enrolment and the pension freedoms, have ‘broken [the] near monopoly’ held by UK life companies.
It said the resulting consolidation, with businesses leaving the market or going under, would concentrate £550 billion of assets into the hands of a few remaining players, which it described as a pensions premier league.
While auto-enrolment will push up total assets from the current £280 billion to £550 billion, the report said 90% of these assets would be concentrated in a maximum of 10 life companies with contract-based workplace schemes and 70 providers of master trust schemes.
Debbie Harrison, visiting professor at the Pensions Institute and co-author of the report, said: ‘By 2020 several well-known life companies will no longer exist in their present form, or at all. Some will be bought wholesale by more competitive life companies; others will be sold off piecemeal as a series of books of business.’
Life companies faced competition from emergent master trusts such as NOW: Pensions and the National Employment Savings Trust.
The report said the premier league will be dominated by large-scale, multi-trust defined contribution schemes.
It said policy and regulatory changes such as changes to the rules on commission payments had ‘broken the life companies’ historic monopoly in the “value chain”’.
It also said an ISA-style system of pension taxation, where contributions are taxed but income is paid tax free, as opposed to the current exempt-exempt-taxed system where only income is taxed, would remove the requirement to save using a pension wrapper ‘eliminating one of the few remaining benefits to the traditional life company business model’.
The move was floated by chancellor George Osborne in his Summer Budget this year.
He said: ‘I am open to further radical change; pensions could be treated like ISAs. You pay in from taxed income but it is tax free when it is taken out and when it is in there it receives a top-up from the government.’…Read more at New Model Adviser