What will the accelerating pace of pension scheme consolidation mean for investment managers?

05 January 2021

Craig Brown Institutional Distribution Director

Author

Craig Brown
Institutional Distribution Director

Craig Brown considers the impact of pension scheme consolidation on investment managers and how Mobius Life can help asset managers, consultants and trustees respond to the changing landscape.

Pension scheme consolidation is now a fact of life in the UK and the pace of this consolidation is only likely to become faster. Let’s have a look at this landscape in the UK and consider how consolidation will impact investment managers, who will benefit from larger pools of investable
assets – but also face increased competition for a smaller number of clients.

The government has always been a keen proponent of consolidation. Its 2018 white paper Protecting Defined Benefit Pension Schemes set out the advantages of consolidation, including reducing scheme cost per member, enabling more effective investment strategies and improving scheme governance.

Since publication of the paper we have seen new regulation of master trusts, which has driven significant consolidation and growth in the sector and the emergence of major DB commercial consolidators, The Pension Superfund and Clara.

The Pensions Regulator’s (TPR) regulation of master trusts in 2019 led to 53 master trusts exiting the market or transferring their membership to other master trusts, leaving 37 authorised schemes. Now over 16 million peoples’ DC pension arrangements are managed by master trusts which hold more than £36 billion in assets.

In summer 2020 new guidance from TPR cleared the way for superfunds to start taking on clients, with announcements of new client wins expected soon.

These radical changes in the market are starting to make a real difference to the way asset managers interact with pension schemes. Larger asset pools mean mandates are often larger – offering a huge opportunity to successful managers, but the number of pools are smaller, leading to greater competition.

Larger schemes are also open to more sophisticated investment strategies, so we’re seeing an increasing expectation from clients for bespoke products that can be designed to meet their individual requirements.

At Mobius Life, we are responding to this dynamic, helping asset managers to manufacture, wrap and blend funds in new and novel ways.

For example we have recently manufactured private asset and structured equity funds for asset managers to meet schemes’ exact requirements.

Platforms also have a significant role to play in supporting the consolidators and administering their pooled assets. At Mobius Life we have the capability to be the consolidation engine for the aggregators, providing administration and reporting at an individual scheme level.

We already provide platform services to around 20% of the master trust market. We deliver efficient investment administration and reporting on an employer-level basis and enable master trusts to invest in sophisticated strategies and illiquid funds due to our advanced platform
technology.

As the UK’s pension landscape matures and consolidates, Mobius Life is here to help asset managers, consultants and trustees respond to the changing landscape.

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