AE collaborations are a cop-out

And Barnett Waddingham’s Damian Stancombe admits their collaboration with Standard Life was driven by providers cherry-picking but stresses “at the very highest level we remain totally committed to the independent market”.

If the barriers to delivering this service are low enough, why haven’t other firms entered the fray?

I say collaborations are a cop-out and consultants should consult; the neat fusion sounds like a Faustian pact.

It is true, few of the employers that are implementing auto-enrolment today can afford the eye-watering costs of a conventional full market review.

Standard Life and Zurich may soon only be accessible by collaboration. Fidelity and BlackRock have all but pulled up the drawbridge. Who’s next?

At one level this is all according to plan. Nest was created to plug this gap and as capacity decreases among insurers, mastertrusts like Now Pensions and The People’s Pension are stepping up to the plate. At a macro level, the Department for Work and Pensions need have no concern of a capacity crunch just yet.

But I worry we are losing advisory and provider capacity too easily. We cannot be complacent about the challenges ahead and we should champion independent advice.

In 2013 I invested my own money, that of my employer as well as resources of various business angels in a venture to offer all employers a full market review and a balanced scorecard that uses actuarial analytics.

The result was a fully realised service. It is being used by employers, financial advisers and accountants to source pension offers for their clients, to compare those offers and choose the best proposition using the same selection process employed by all the leading defined contribution consultants. There are only two differences between this and a traditional full market review: the first is that it works in real time, and the second is that it costs much less.

If the barriers to delivering this service are low enough, why haven’t other firms entered the fray? The retail distribution review has all but eliminated independent financial advisers from selections, and most non-regulated firms (such as accountants) do not feel equipped to provide whole-of-market advice at any price.

As we journey through 2014 capacity will decrease, and as we hit the spikes of 2015 demand will increase to such levels that many employers will struggle to find capacity.

Technology-based platforms not only provide the employers a service, they can act as clearing houses, relieving this pressure.

And I simply do not buy the received idea that workplace pensions for small-to-medium enterprises are intrinsically unprofitable. Having worked for Zurich for 10 years I know where profitability lies: if you get your distribution costs down, implement straight-through processing, manage your external fund management costs then workplace pensions are an attractive proposition.

If the supply side can be managed and providers can get on board in a timely way, then the risk of not doing business outweighs the operational and financial challenges of ‘bottom-feeding’.

The UK insurance industry is taking a short-sighted view and missing a once-in-a-century opportunity to contribute to our national policy on pensions. Insurers may consider these collaborations a flight to quality, but the strategy is unambitious and unimaginative.

Insurers should be encouraging innovation and should be prepared to trust new means of distribution that suit the way modern employers procure other services.

It is not too late to change this. Businesses like mine are scalable and they are also replicable. It would please me if there were more competitors as there are several means to buy other compulsory insurance services.

We can and should do better than auto-enrolment collaborations.

Henry Tapper is a director of First Actuarial and founding editor of Pension Playpen