Mansion House reforms: Consolidation shouldn’t come at the expense of innovation and fresh thinking – Stephen Budge, LCP
Pensions & benefits DC pensions Mansion house reforms
As details start to emerge ahead of the Chancellor’s Mansion House speech, the loudest talk is around the further drive for consolidation, according to LCP Partner Stephen Budge.
He commented: “If there was a drumbeat, this would be nearing deafening levels when it comes to consolidation.
“We now understand that there is likely to be a consultation on a minimum level of assets requirement for master trust arrangements alongside the push for consolidation across the entire DC market across both GPP and single employer trusts. This sets a clear expectation from the government that size does matter when it comes to delivering better outcomes for members.
“If this does indeed get announced later today, the key question will be at what level the size threshold for master trusts will be set. If the reference to a minimum size of £20bn or £25bn is to be trusted, that’s likely to have a significant impact on the master trust and shrink it to just a handful of players – a radical shake-up of the master trust market.
“While there are advantages of having larger pools of assets which can drive efficiency and value for members, we need to be careful that we do not consolidate away innovation and fresh thinking – given the significant barrier to entry this would create.
“All DC schemes, including single employer arrangements, are already delivering a value for money regime, which provides a framework to evidence to members that they are delivering good value. With the further developments currently being consulted on by the FCA to further the focus on improving members outcomes, it’s unclear why the government is continuing to push in this area.
“We do fear that a lack of players in the market is likely to create unintended consequences where master trust providers will start to look very similar indeed. Our view is that this could lead to a dangerous level of consolidation, insufficient to enable healthy competition across the market, potentially limiting future innovation.”
