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Pensions consolidation
Employers’ Club
2 July 2019
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr ffiirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG IInntteerrnnaattiioonnaall CCooooppeerraattiiveve ((““KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd..
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
With you today
Matthew CalveleyDirector
DC Pensions & Wider Savings
T: +44 (0)161 2464591
E: matthew.calveley@kpmg.co.uk
Tom SeecharanDirector
Head of the Pensions Risk Settlement team
T: +44 (0)207 6944954
E: tom.seecharan@kpmg.co.uk
22
3
Document Classification: KPMG Public
3
Document Classification: KPMG Public
Agenda
DC/workplace savings landscape
DC consolidation
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr ffiirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG IInntteerrnnaattiioonnaall CCooooppeerraattiiveve ((““KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd..
DB consolidation
DC/workplace savings landscape
5
Document Classification: KPMG Public
© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5
Document Classification: KPMG Public
© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0%
50%
100%2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Trust Contract 2016 2017
MT 5% 10%
Trust 46% 47%
5… 15% 21% 23% 20%9%
7%
24%
46%58% 69% 84%
2%
3%
4%
4% 4%5%
86%
58%
29%15% 7% 3%
0%
20%
40%
60%
80%
100%
Less than£10,000
£10,000 -£29,000
£30,000 -£49,000
£50,000 -£99,000
£100,000 -£249,000
£250,000and above
Annuities Dreawdown UFPLS Full cash withdrawals
Workplace
savings
Invest in DC
account
Lifetime ISA
Corporate ISA
General Investment
Account
Employer contribution
Debt
consolida
tion
Employee contributions
DC/workplace savings landscapeUK DC Market
Source: Pensions and Lifetime Savings Association (“PLSA”)
FCA retirement stats (Oct 15-Mar 18)
UK DC providers
Insurance
Companies
— Aegon
— Aviva
— Fidelity
— Standard Life
— Legal &
General
— Scottish
Widows
Employee Ben
Cons (Master Trust)
— Aon
— Capita
— Mercer
— Xafinity
— Willis
Towers
Watson
Others
— Now:
Pensions
— Nest
— SEI
— Salvus
— The
People’s
Pension
Note: The above does not represent an exhaustive list of providers in the market
Significant consolidation in the market with further expected post Authorisation
Integrated workplace savings
DC consolidation
DC Master Trust – vehicle of choice?DC delivery vehicles
100%
80%
60%
40%
20%
0%
05
06
07
08 9
0 10
11
12
13
14
15
16 7
1
20
20
20
20 0
2 20
20
20
20
20
20
20 0
2
Trust Contract
2016 2017
Master Trust 5% 10%
Own Trust 46% 47%
Source: Pensions and Lifetime Savings Association (“PLSA”)
DC providers
Insurance Companies
— Aegon
— Standard Life
— Fidelity
— Legal & General
— Aviva
Employee Ben Cons (Master Trust)
— Aon
— Capita
— Mercer
— Xafinity
— Willis Towers
Watson
Others
— Now: Pensions
— The People’s
Pension
— Nest
— Salvus
— SEI
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr ffiirrmms s aaffffiilliiaatteed d wwiitthh KKPPMMGG IInntteerrnnaattiioonnaall CCooooppeerraattiiveve ((““KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd.. 77
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
Note: The above does not represent an exhaustive list of
providers in the market
To provide some
context, Automatic
Enrolment has
increased the number
of members of DC
schemes to around
15 million. Almost
13.5 million of these
are in DC
Master Trusts.
Source: The Pensions Regulator
scheme return data 2018/19
Master Trust Authorisation
Authorised6
Exiting Applied
the and
market awaiting
44 response32
Source: TPR data and Professional Pensions analysis as at 28 May 2019
Authorised by The Pensions Regulator
LifeSight Crystal Bluesky USS
Legal & General
Submitted their application to The Pensions Regulator
Mercer Aegon Aon Standard Life
Fidelity TPT Capita Smart Pensions
Aviva SEI Nest Xafinity
Ensign Creative Auto Enrolment The People’s Pension
Note: The above does not represent an exhaustive list of providers that have applied for authorisation
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr fifirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG InIntteerrnnaattiioonnaall CCooooppeerraattiiveve (“(“KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd.. 88
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
Key drivers for changeCompany cost and risk exposure
— Reduces cost in relation to the running of the Plan
— Reduced/removed management time/ administration/risk
— Avoids expected future ‘improvement’ spend – comms, investment, admin, governance requirements
— Ready made product for any new populations e.g. acquisitions
Trustee risk
— Removes requirement to complete the various mandatory tasks and reporting
— Governance and oversight responsibility passed on to professional independent Master Trust Trustee
— Opportunity to outsource and (potentially) improve communication channels
— Remain under the governance structure of trustees held accountable by The Pensions Regulator
Employee/Member experience
— Complete member journey to retirement and potentially in retirement. Same/similar charges to access
drawdown in scheme. All retirement flexibilities available to members
— New technology, modellers and apps. Digital capability for communications and interaction with the Plan
— Member education, at retirement support and engagement tools. Face to face and digital
— Access to wider savings vehicles – all savings in one view and modelled as one
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr fifirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG InIntteerrnnaattiioonnaall CCooooppeerraattiiveve (“(“KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd.. 99
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
DC consolidationMulti-scheme rationalisation
GPP MT
Stakeholder
Single
pension
scheme
CISA
LISA
GIA
Single, integrated, savings platform:
— Convergence of auto-enrolment/main scheme contribution structures
— Consistent/transparent charging structure ‘to and through’
— Clear engaging ‘employee journey’
— Uniform governance oversight and modern DC scheme fit-for-purpose for all
Evolving default investment strategies
0% 20% 40% 60% 80% 100%UK Equities International Equities EM EquitiesGovernment Bonds Corporate Bonds HY/EM BondsProperty Alternatives/Other Cash
Provider AProvider BProvider CProvider DProvider EProvider FProvider GProvider HProvider IProvider JProvider K
Increasing (improving) DC governance
Financial Conduct
Authority
Department for
Work & Pensions
The Pensions
Regulator
— Chair’s Statement
— Value for Member
— Transaction cost disclosures
— Automatic enrolment certification
— Automatic enrolment certification
— Default investment strategy
reviews
— Charge cap compliance
— Governance Committees
— ESG considerations, illiquid
assets, etc
Full choice and flexibility
At retirement
decision
Annuity option Cash and pension
Flexi-access
drawdown
New form of income
drawdown
Withdrawal
Partial withdrawals
Full withdrawal/
Triviality payment
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr fifirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG InIntteerrnnaattiioonnaall CCooooppeerraattiiveve (“(“KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd.. 0110
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
Example digital capability – Currently availableProviders have invested significantly in their online member sites and financial education tools. Some examples of
the tools available in the market are below.
Aviva My MoneyAon – Supporting members throughout their
lifetimeStandard Life’s mobile app
Zurich’s ‘Picture This’ tool L&G video benefit statements LifeSight’s Ageometer (MT only)
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr fifirrmm ooff ththee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr fifirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG InIntteerrnnaattiioonnaall CCooooppeerraattiiveve (“(“KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AlAlll rriigghhtts s rreeseserrvevedd.. 1111
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
Example digital capability – Future developments
Links to
banking
apps
Relevant
member
segmentation
Digital
robo-advice
Augmented
reality
Debt
consolidation
Increased
use of
social
media
Increased
functionality
through apps
Developed
links to
wider
workplace
savings
Live Chat to
guidance
support and
admin
Additional
personalisation
in comms
Improved
real time MI
Stronger
security for
apps
Digital
drawdown
journeys
Lifetime ISA
© © 22001199 KKPPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr ffiirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG IInntteerrnnaattiioonnaall CCooooppeerraattiiveve ((““KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd.. 1212
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
Summary: Possible end gameFuture-proofed DC/workplace savings
Digital
communications
and technology
to engage
employees
Professional
Independent
Master Trust
Trustee
Modern DC
scheme fit-for-
purpose for all
All supported
by member
education,
guidance and
advice
facilitated by
provider/
Master Trust
Modern DC
investment
strategy
Competitive
member
charges
including future
improvement
spend
Access to
retirement
flexibilities with
no additional
cost or
restrictions
Ongoing
employer led
governance &
oversight
Opportunity to
prepare for a
future
integrated
savings
platform
— Underpinned with
technology and
payroll integration
— Consistent
charging structure
© © 22001199 KPKPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr fifirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG InIntteerrnnaattiioonnaall CCooooppeerraattiiveve (“(“KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd.. 3113
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
DB consolidation
Main things you need to know about “superfunds”
Lower cost but higher
risk exposure
— Reduces cost versus a
traditional buy-out due to lower
capital requirements and
greater regulatory flexibility (e.g.
over investment strategy)
— Cost expected to be similar to
pensioner buy-in for pensioners,
but up to 10% cheaper for
deferreds
Employee/Member
experience
— Expected to be “best of breed”
service to members, in line with
that offered by insurance
companies, which may be
significantly better and more
cost effective for many smaller
schemes
— In some models, members
could also benefit from a share
of any upside profit
Risk
considerations
— TPR’s “Gateway” guidance is
designed to insure that
schemes that can (or are likely
to be able to) afford an
insurance company buy-out at
some point, should still target
that
— Superfunds are therefore most
applicable where the covenant
is weaker. However, there must
still be some source of funding
available – either from the
Scheme itself being well funded,
or from an unconnected 3rd e.g.
a foreign sponsor or due to
M&A type activity
© © 22001199 KKPPMMGG LLLLPP,, a a UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff tthhee KKPPMMGG nneettwwoorrk k ooff ininddeeppeennddeenntt mmeemmbbeerr ffiirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG IInntteerrnnaattiioonnaall CCooooppeerraattiiveve ((““KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AAllll rriigghhtts s rreeseserrvevedd.. 1551
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
Superfunds: An important milestone
Mar 18
White paper
issued by DWP
Q1 2019
TPR issues
guidance
Consultation
issued by DWP
Consultation
closed
Q2 2019
TPR begins
assessment/
pre-authorisation
of superfund
models
First clearance
application
submitted
Q3 2019 Q4 2019
DWP respond
to Consultation?
TPR concludes
authorisation of
Superfund models?
Q1 2020
TPR gives clearance
to first deals?
Q2 2020
onwards
Pension bill?
© © 22001199 KPKPMMGG LLLLPP,, aa UUKK lliimmiitteedd lliiaabbiilliitty y ppaarrttnneerrshshiipp aanndd aa mmeemmbbeerr ffiirrmm ooff ththee KPKPMMGG nneettwwoorrk k ooff iinnddeeppeennddeenntt mmeemmbbeerr fifirrmms s aaffffiilliiaatteedd wwiitthh KKPPMMGG InIntteerrnnaattiioonnaall CCooooppeerraattiiveve (“(“KKPPMMGG IInntteerrnnaattiioonnaall””)),, aa SSwwiiss ss eennttiitty.y. AlAlll rriigghhtts s rreeseserrvevedd.. 1616
DDooccuummeenntt CCllaassssiiffiiccaattiioonn:: KKPPMMGG PPuubblliicc
Questions?
Thank you
Document Classification: KPMG Public
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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