Panellists discuss recent competitors to NEST, and the pros and cons of a master trust arrangement.
We have seen several companies look to launch competitors to NEST over recent weeks. However, an actuary says this could have a negative impact on savers over the long term – do you agree?
Dave Hodges: The argument is based on the fact that any master trust arrangement, or NEST for that matter, relies on scale in order to make the commercials work.
We have seen a number of launches recently in direct competition to NEST. These schemes need large volumes of members to work; if they don’t get them there is a danger that they will have to close, potentially leaving a large number of small stranded pension pots.
There is certainly a risk here of a negative impact on savers over the long term. It is hard to see that these arrangements can compete with the volumes NEST can expect as the default auto-enrolment provider for its small companies target market.
For the larger companies, one main attraction of master trusts is short service refunds, the future of which is highly questionable.
Martin Palmer: This is a tricky one. You can see the point being made in terms of stranded pensions pots and so on, but competition is valuable.
Competition may be on price but, more importantly, is likely to also involve the quality of the proposition being offered.
We expect competitors will need to offer additional functionality that will focus on providing enhanced member engagement and education but also on making life easier for employers in meeting their legislative requirements while ensuring they get value for their contributions in terms of increased employee appreciation.
Anyone launching into the NEST market will inevitably need to be competitive in terms of price but also commercially viable.
Of course, you can’t look into the future and there may be some competitors to NEST that later elect to exit the market, but even in this scenario no monies will be lost: the individuals will be able to transfer their benefits.
Do you expect to see a significant growth in the master trust market over the next year or so?
Dave Hodges: The market is starting to see demand for master trusts come through and many of the mainstream providers have master trust arrangements ready to launch.
However, given that Steve Webb has publicly vowed that short service refunds will not be part of the pensions landscape going forward, it is likely to have an impact on sales of master trusts.
For some employment sectors, a master trust solution will still be attractive, particularly where there is a strong cultural belief in the added governance value of trust-based solutions.
For those companies who employ large numbers of low paid transient workers, but seek a high level of branding and influence over investment options, a master trust solution will be a strong alternative to NEST.