January 17, 2013

Administration, Risk Control and Competitive Fees Driving DC Pension Scheme Platform Selection, According to New BNY Mellon-Cerulli Associates Report

LONDON, January 17, 2013 — A new report published by BNY Mellon, the global leader in investment management and investment services, in association with Cerulli Associates, has identified administration, risk control and competitive fees as the three key critical considerations for DC pension schemes selecting a platform provider in the UK.

The new report – The Future of UK DC Pension Platforms – notes that the workplace savings market in the UK is currently going through the most radical period of change in a generation. Developments and innovations in full service ‘bundled' platforms – the infrastructure allowing pension schemes to receive administration, investment and communication services combined – will play a defining role in the future delivery of workplace savings provision.

Pensions and benefits managers must ensure their chosen platform providers can offer the appropriate range of at-retirement solutions or linkages to other providers as appropriate. At the same time, platform providers themselves need to align their products to better meet the changing needs of pension schemes.

David Calfo, Group Head of DC Strategy at BNY Mellon, said: "The industry has reached a watershed. Developments initiated in the next 12-18 months will have a lasting effect on shaping its future. Several legislative initiatives, from auto-enrolment to the Retail Distribution Review (RDR), have created further impetus for all those involved to review their existing models."

The introduction of auto-enrolment will over time likely precipitate a large influx of additional pension contributions due to anticipated higher levels of take-up and is also prompting employers to review their existing pension scheme provision for their workforces. At the same time, there is also likely to be an increased shift from unbundled to bundled offerings to allow pension schemes to harness cost savings and improve administrative efficiency.

The report highlights a number of key findings:

  • Platform providers will need to build dependable and scalable administration systems to capitalise on the expected shift in the market;
  • Deep pockets will be essential to success and this will need to be balanced with the need to achieve profitability in an acceptable timeframe;
  • Platforms will need to monitor spending closely and segment their client base by targeting the most profitable lines of business and scheme types;
  • It will take persistence and dedication to yield the long-term benefits inherent in this market;
  • Consultants and corporate advisers will retain a significant role in the highly intermediated pensions industry with their roles continuing to evolve.

Central to this report are surveys conducted amongst some of the largest and most influential pension schemes and investment consultants in the UK. Fifty-four UK pension schemes participated in the survey, representing €175 billion in pension AUM. For the consultant element of the survey, 12 firms took part, encompassing the three global giants as well as a mix of the large and medium-sized local players.

The report also notes that the traditional consultancy model continues to evolve. After platform providers are appointed, a third of users surveyed confirmed that they would expect a reduced role for their consultants. The challenge for consultants and corporate advisers is to expand the scope of their services and demonstrate better value for money in a corporate pensions market that will be increasingly dominated by platforms.

Calfo commented: "The changing marketplace means that today's front-runners may not be tomorrow's leaders. Consultants and advisers will prefer to work with platform providers that are aligned to their current and developing business models and those that are expected to evolve in line with their future needs, as well as those of their clients.

"High inertia in pension schemes makes them tough clients to convert but loyal customers to keep. Winning mandates from pension schemes that do not currently use a platform generally means overcoming the client's fear of losing control and making it easy for them to transition their scheme and existing fund holdings onto the platform of choice. Poor service is overwhelmingly the most likely reason for a platform provider to lose existing clients."

Shiv Taneja, Managing Director at Cerulli Associates, said: "Deep pockets and perseverance will be essential to sustaining a platform business. Knowing which pension clients to target, whether offering whole of market services or pursuing a selective group, will be the key to healthy profits. Far-sighted providers are developing decumulation solutions, including annuities or income drawdown, despite lukewarm interest from pension schemes."

The full report can be found at: www.bnymellonam.com/core/literature/campaigns/email/cerulli_report.pdf

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $26.7 trillion in assets under custody/administration and $1.4 trillion in assets under management, services $11.4 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available on www.bnymellon.com or follow us on Twitter @BNYMellon.

This press release is issued by The Bank of New York Mellon to members of the financial press and media. All information and figures source BNY Mellon unless otherwise stated as at December 31, 2012. The Bank of New York Mellon, London Branch, registered in England and Wales with FC005522 and BR000818. Branch office: One Canada Square, London E14 5AL. Authorised and regulated in the UK by the Financial Services Authority.