A quick trip through pension time (abridged)
- The State Pension – retire when the state can afford it – increasingly later in life in the future
- Defined Benefit company pensions – retire at 50 with a gold plated income! – PPF!
- Personal Pensions – please save!
- Bancassurance Mk1
- Additional voluntary contributions – retire with more
- Defined contribution work pensions – now you have to wait….and buy an annuity
- Banking credit crisis
- RDR no more advice from the high street
- Mandatory auto-enrolment into workplace pensions – now you have no excuse!
- Self Employed – the new growth economy – it’s up to you…..
- Pensions Freedom – now you all have to fend for yourselves
- Public Sector Employers have (yet) to move away from defined benefit schemes
Retail banks have largely withdrawn from the advice market – except for things like staying safe on the internet – and have also developed a largely risk-averse model to providing services that could later on provide a litigation liability, divesting themselves of the pension companies that were established to support Bancassurance MK1.
This year the CMA 9 have had to open up their core functions to 3rd party providers, with the expectation that there will be a flood of new entrants to add value to the core retail banking proposition
We shouldn’t forget that retail banks still provide most of the cash based savings accounts – including ISA’s and that these will still account for a large proportion of an individual’s savings in retirement. These are not the subject of the open banking API regime.
IFA’s do not have mass market appeal and largely focussed on the medium to high net worth segment of the population
Pension Administration providers’ business models are geared around low volume distribution chain interaction and high value individual holdings. In addition the provision of advice has been at arms-length through the IFA channel or through mandatory implementations such as auto-enrolment.
SIPP providers are now challenging the traditional providers as product structures for saving are moving away from the traditional margin rich product type – remember also that in essence the defined benefit model is not for profit.
Fund Management Companies are beginning to come under pressure to justify the charging structures that have traditionally been enjoyed as fund management fees are now coming into the spotlight with MIFID
Not for profit (Mutual) organisations and State owned NEST as a platform of last resort could be or are becoming major retail finance providers.
Pension Scheme administrators and Payroll service providers – many pension schemes and companies outsource the operation of core payroll and pensions administration to 3rd party providers.
Is there room in the overall value chain for all these providers?
- Should open banking become more than open current account?
- Are the pension providers of old (and new) really geared up to become mass market payroll and investment advice providers?
- Are Pension API’s the next necessary regulatory step – as with the CMA 9 and open banking
- Will the pension dashboard mean anything to the vast majority of consumers?
- Will ‘De-accumulation’ will be the dominant retail proposition for retail banking?
Could this lead to a new ‘financial services’ model – let’s call it Bancassurance Mk2, only this time the ‘banc’ is the service not necessarily the organisation.
In this model a new regulated service provider takes advantage of the open API world and becomes your gateway to financial services of the future but with a twist – Automation of advice, advanced analytics and automation of investment and risk management, wafer thin margins, fully digital interaction, and with a community ethos. Sounds a bit far-fetched? The technology exists, some of the regulatory environment exists – but will it take a scandal for someone to make the investment?
Can annuities make a comeback?
And a final thought - mass market advice, investment risk management and investment management charges will lead to the next public purse challenge. Company funding of Defined Benefit schemes is in the sights of both the regulator and legislators, but PPF liabilities may pail into insignificance if the vast majority of the population is exposed to another financial crisis leading to plunging stock market valuations – either because those in retirement are managing their own risks or because the providers of annuities find themselves in financial difficulties – the baby boomer bulge may yet have a kick in its tail for the politicians of the future as they demand that the state manages investment risk – maybe through a state provided annuity scheme?
I’m interested in your thoughts. Feel free to leave a comment or reach out to me to discuss further.
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Paul. I enjoyed your article on Bancassurance Mk 2. Interesting that the FCA are now reviewing the RDR that effectively killed off bancassurance post 2012. I agree that a new model could be on the cards as we move into an era of open banking and automated advice. The biggest challenges for firms will be trying to make their offering across varied regulatory regimes...for example it seems sensible to put a cash offering alongside an investment or pension offering...but try to make this cost effective and safe from a regulatory perspective is challenging