KGC recently released its 10th Annual Administration Survey. The survey looks at what administrators charge for a ‘standard’ service across eight different scenario schemes, online functionality available to members as well as trustees and the employer. We ask questions around trustee engagement, activity assumptions and the associated costs. The final part of the jigsaw puzzle is the industry view section, here we ask administrators for their thoughts and views on issues and trends of the past 12 months and what they think will happen over the coming 12 months. We opened up this section and asked some of the questions to trustees and pension managers for an holistic view of the market.
Since our first survey was launched in 2009, there has been significant change in the pensions landscape – introduction of Auto-Enrolment, CMA review into the fiduciary market, pension freedom & choice, the cold-calling ban, increases to the State Pension Age, the default retirement age being abolished and five different pensions ministers to name but a few.
It is not just the landscape of the industry changing either, it is the face of it too. Since our first survey there are only four participants who have not undergone change in the last 10 years through some form of merger or acquisition activity. We expect to see further activity over the next 12 months. KPMG is actively marketing its pension business for sale and it would not be surprising if a few other names crop up in this space too!
We asked those at the forefront of pensions administration what they make of the market consolidation. Many saw it as an opportunity for growth:
One participant stated market consolidation is a positive for its business:
For some time, the big top four have been a tough act to beat. However, in recent times we have seen a shift in the market. Some of the mid-tier firms have upped their game and are being tailgated by some of the newer, smaller providers in terms of technology and customer service. Participants felt larger schemes are beginning to look outside the top four and in turn, smaller providers are looking upstream for new clients:
But there is cause for concern. In our 9th Survey participants were worried about a capacity crunch, an adverse effect on quality and stretched resources. These concerns are still prevalent 12 months on:
There is also concern over providers not being geared up to the needs of clients due to their size:
It comes as no surprise providers and often their owners are looking at ways to improve their business strategy. Administration is often seen as a loss leader within the industry so there is caution when choosing new business. Of course, most will see the recent wave of mergers and acquisitions as a good opportunity, but the market is a very unsettled place right now. This has been noted by TPR who is taking a keen interest in administration right now.
With Aon removing itself from the administration only market, Xafinity buying Punter Southall and Mercer acquiring JLT there are a number of schemes and trustees wary of what the future might hold and how best it can protect its members through the inevitable change they will experience. It is vital communication lines are wide open to ensure service quality is maintained. We are beginning to see trustees and pension managers unafraid to transition away where service levels are below expectations and the market should take heed.
The traditional market is in a very delicate position, with potential further exits are we heading for an administration crisis? Or is it an opportunity for a new market entrant to emerge?
Hayley Mudge, Research Analyst & Report Author