Auto-enrolment will see the value of the defined contribution pensions market grow more than six-fold by 2030, triggering a bloody battle for market share, the Pensions Institute said today
In a report that takes a long-term look at the impact of auto-enrolment, the institute predicts that assets under management will increase from £276bn in 2012 to £1.7 trillion by 2030.
This huge market growth was likely to provoke fierce competition between providers, resulting in just five or six multi-employer schemes operating by the end of the decade. The future for many employee benefit consultants and corporate advisers currently in the market was 'uncertain', the institute said.
Its report is also predicting a 'wholesale shift' from single-employer schemes to multi-employer arrangements, once employers remove their defined benefit liabilities from the balance sheet and can begin dismantling the DB trustee infrastructure.
Debbie Harrison, visiting professor at the Pensions Institute, said: 'The stakes are high and the battle to secure market share between now and 2018 is going to be bloody.
'The government and regulators must ensure that in a market where competition is weak, due to the lack of expertise of smaller employers, that the schemes that emerge as victors do so because they offer genuine member value for money. Otherwise there is a danger that deep pockets, predatory pricing and conflicts of interest might become the hallmark of the dominant auto-enrolment schemes.'
The report, VfM: assessing value for money in defined contribution default funds, makes a series of recommendations including the need to define the scheme member's target outcome in terms of an income replacement ration. Such a measure was the only 'meaningful' way of expressing the outcome.
All costs and charges should be reported in full to scheme governance boards and regulators, and full disclosure of data should be made on a central website for independent public scrutiny.
The auto-enrolment market also needs a clear and consistent legal and regulatory regime across both contract- and trust-based schemes.
'Without this reform, regulatory arbitrage will make a mockery of the new pension system for the private sector,' the institute said.
Darren Philp, head of policy at B&CE's The People's Pension, noted that the report wasn't the first to call for a single pensions regulator.
'We need a regulatory framework that protects members, drives up standards and ensures the market works effectively,' he said.
'Delivering value for money requires transparency. We need an approach that allows employers and employees to be able to compare easily what different schemes cost.'
Lee Hollingworth, partner and head of DC consulting at actuaries Hymans Robertson, said the institute's report provided a valuable independent review of the DC market as well as an 'intelligent methodology' for the assessment of consumer value.
'Experience has shown us that the majority of DC members will be unable to manage their pension effectively or engage with it in a way that will provide an adequate income in retirement.
'A step change in DC design and communications is needed to help support members towards a targeted retirement income replacement rate in retirement.'
At NOW Pensions, chief executive Morten Nilsson said: 'In recent months, the spotlight has been firmly on pension scheme charges. But, the Pensions Institute report clearly identifies that while cost is a key determinant, other elements are of equal importance when weighing up value for money.
'At the moment, very few schemes have all the characteristics of a value for money scheme. This needs to be urgently addressed otherwise the long term success of auto-enrolment could be seriously undermined.'