Wrapping it up!

Back in October, there was a single provider in the market, WEALTH at work, with three in the wings waiting to unveil their offerings in the coming year: Axa, Friends Provident and Standard Life.

Since then, many more have indicated their interest in this market, including Hargreaves Lansdown and Paradigm Pensions, while a few have backed off. There are several reasons for this increased interest and pace of development.

The ongoing shift from defined benefit (DB) to defined contribution (DC) schemes has implications for different parts of the relationship chain. Insurance companies will have many more DC schemes to manage, and their old structures simply can’t cope with the volume and sophistication of individual accounts.

In an increasingly commoditised group pensions market, focus is also moving from product manufacture and administration to asset gathering.

This approach is put to good effect by consulting companies in other jurisdictions. In a DC environment, there is less opportunity for consultants to derive revenue streams from actuarial and investment consulting, and they therefore must evolve or perish.

This asset gatherer approach – as opposed to asset guardian or administrator – is an ambition for all those seeking a toehold in the corporate platform market.

Gathering the wagons

Five companies participated in this survey (table one, opposite). Only one of these, WEALTH at work, has a product currently available to the UK market.

The others listed – Ascentric, Axa, Friends Provident and Standard Life – are all due to launch by the end of 2010. Of course, the trouble with technology rollouts is that they can be as prone to delay as a bride on her wedding day.

We asked those surveyed how many companies they thought would enter the market in the next 12 months. The average answer was four to five, although a few did expect a considerable influx in 2011, with more than double that.

Certainly, those projected four or five entrants are covered by the intended launches in the table – and we know there are others waiting in the wings with offerings. Legal & General, despite telling PM in October last year that it was indeed in the corporate platform space, has since backtracked.

Simon Pardoe, development and marketing director, workplace savings at L&G told PM that despite being active in this area, there is more work to be done.

“We shall be developing our WorkSave platform through the addition of further product wrappers, including EFRBS [employee-funded retirement benefit schemes] and cash ISA, plus increased tools, educational content and further development of integrated technology around provision of customer data and services.”

Zurich and Scottish Widows are also known to be pushing ahead with the development of a platform. Zurich had hoped to take part in the survey, but could not pull the data together in time.

Prudential was also known to be discussing the possibility of developing a corporate platform. However, these plans were shelved late in 2009 and there are no plans to revive them in 2010.

Table one offers a conspicuous lack of hard data, but it does contain a few interesting points.

First, we know there will be five players in the market by year end. We also know that, with the exception of WEALTH at work, none of the others have any clients as yet, although Ascentric has £10m funds under administration and its system will be administered from one regional location.

Curiously, although Ascentric is part of the Royal London Group with Scottish Life, it has no apparent alignment of interest or even common culture. Scottish Life says it has no platform offering, nor does it plan to launch one within the next 12 months (see page 4).

PM has discovered that several of the companies, while having no clients at the moment, have determined a considerable appetite for a corporate platform within the reward structures of FTSE 100 and FTSE 250 companies.

However, not everyone is convinced by the new kid on the block. Alistair O’Connell, managing director of Aon’s pensions consulting business, told PM there are more effective means than a corporate platform for meeting clients’ objectives of best value and differentiation from their employee benefit programmes.

An independent benefits portal, which brings together all the benefits and savings products that an employer wishes to offer their employees, is likely to prove more cost-effective and have a greater impact.” he says.

Although he accepts that bringing together disparate benefits can save costs, O’Connell adds: “ It is vital to ensure that your benefits savings offering is closely aligned to both corporate and employee objectives. You should not simply offer a raft of products because they happen to be available from a particular provider.”

Aon has, to date, made no overtures to enter the arms race to develop a platform itself.

Certainly, these platforms are not aimed at offering the whole of market access in an open architecture environment.

Table three (page 36) shows that a particular provider’s tax wrapper will be the default for clients on these platforms – but that is simply common sense. Who better to develop a platform with than yourself, particularly if you have any legacy systems that must interact with the new offering?

Of course, that doesn’t mean that other providers will not be able to integrate at a point further down the line. After all, providers hope that employee benefit consultants (EBCs) and corporate IFAs will not only champion the use of corporate platforms, but become clients themselves and take a white-label version to their customer base. A single insurance company’s wrappers might be a deal-breaker.

This is an issue that has surfaced time and again in the debate on individual platforms – a part of the industry in which Axa and Standard Life are heavily engaged. It has also been compounded by the retail distribution review and its subsequent implementation programme that proscribes certain ways of conducting business.

Table two (page 36) shows the range of products and wrappers that will be available on launch of each of these platforms, or are currently offered by WEALTH at work.

Table four provides further detail on these offerings. It is clear that each company is focused on providing a suite of products that offers a level of benefits that might be called ‘pensions plus’. Put simply, this is pensions combined with other workplace savings products, which can be easily and effectively integrated into an employee benefits package that is more holistic and, arguably, flexible.

It is interesting to note, however, that Standard Life is the only company in the tables that will be offering more than flex benefits integration. Since its purchase of Vebnet in September 2008, at a price industry sources believe was considerably more than its market value, the company has been seeking to shoehorn it into its corporate platform project.

As a result, flex is at the core of this offering, and the strategy involves bringing together a number of other Standard Life systems to create a whole. In so doing, it has decided not to work with FNZ on this system, but go it alone.

This is a brave move. Recent history is littered with the stillborn progeny of companies who have sought to create a Frankenstein’s monster of offerings – not least Friends Provident, which announced its tie-up with FNZ in 2009.

There is no one to say that Standard Life won’t get it right – but it has raised concerns that Standard Life’s commitment to flexible benefits is indicative of a new business model that will involve it going directly to clients, rather than through an intermediary.

Friends Provident and Axa have made it very clear that they consider their future success to be aligned with that of the advisory community. In the same way that individual wrap platforms can revolutionise the working practices of financial advisory by freeing it from the tyranny of administrative slog and allowing it to complete more fee-paid work, so the providers see the same rewards for consulting businesses.

Martyn Bogira, director of DC at Prudential, says provider and EBC platforms can co-exist in the market, as different schemes will require different solutions and, in the current climate, costs are an important factor for employers.

“However, we believe that bypassing EBCs would not be in the best interests of clients and our strategy reflects this,” he says. “Other providers may adopt this strategy where they feel they are not being shortlisted in tenders by EBCs.”

“Many clients also prefer to deal with EBCs,” he adds, “as they can access the whole market and shortlist appropriate providers to meet the client’s requirements.”

So what are a client’s requirements, in the 21st century?

“People’s financial and lifestyle needs are now varied and complex,” says Nigel Aston, business development director at PensionDCisions. At the same time, he adds, the pension brand is tarnished for well-documented reasons.

“The ‘one size fits all’ approach of pensions alone as a benefit solution is no longer relevant to many large employers or the people who work for them. Corporate platforms are one solution to this.”

Many younger employees refuse to lock up their money for 40 years when they must pay off loans or save for a deposit on a house. Meanwhile, employers are concerned that the substantial DC contributions they make are not fully appreciated by their workforce.

The closure of DB schemes means something must replace them, says Paul McMahon, managing director of corporate benefits at Axa.

As 2012 approaches and auto-enrolment looms, employers will want to differentiate themselves.

“Pensions are too narrow a solution for a modern workforce,” says Martin Palmer, head of corporate pensions marketing at Friends Provident. “Younger workers are not attracted to retirement saving, and have other priorities such as debt management and property purchase.”

Driving interest

Corporate platforms have tremendous potential to encourage employees to take a real interest in their financial planning, Palmer says. This is provided there is a choice for employers who want to differentiate their employee benefits from the state-sponsored scheme, and that there are meaningful benefits for the workforce.

“We are observing that more employees are interested and enthusiastic about pensions and general savings,” he adds.

Member engagement and experiences of investment are receiving increasing focus, even with an 80%-plus default rate. Many of the companies surveyed believe corporate platforms can address these issues.

Jamie Jenkins, head of corporate strategy and propositions at Standard Life, thinks membership engagement and behavioural finance techniques will be crucial in ensuring the acceptance and adoption of corporate platforms.

“Given the breadth of types of employee and varying levels of financial awareness, well-constructed education will be key to creating an engaging experience,” he says. “Some will have access to advice, but many will not.”

Steve Rumbles, head of the UK business at Blackrock, told PM:

“We believe there is a genuine need, but also, more cynically, consultants and providers are always looking for ways to bind their clients ever more closely to them.

“This one-stop-shop savings model, which will capture all the DC-style saving, is probably the closest equivalent DC has to DB fiduciary management.”

This view may be cynical, but it could have a considerable effect when applied properly, according to John Reeve, senior consultant at Premier Pensions Management.

“If we can move away from ‘pensions’ towards ‘savings’, and include ‘savings for retirement’ in this, we will start to make a real difference,” he says.

“Everyone dismisses pensions, but most save, even if it only saving for a holiday. We need to make this all seamless.”

Seamless is certainly what the providers have in mind. The core offering, at least for now, is cash, share schemes, ISA and some form of pension, whether it is a group personal pension or a self-invested personal pension (see table four on page 36).

Decisions have yet to be made as to whether other ‘executive’ options such as EFRBSs or employee benefit trusts will be included, but all those surveyed believe the exclusion of the better-paid element of the workforce can have a detrimental effect on the rest of employees (more on this in PM in future issues).

Reeve says that ultimately, the arrival of corporate platforms may well redefine the roles of all providers and advisers in the market.