Administration, risk control and competitive fees are the three key critical considerations for defined contribution (DC) pension schemes when selecting a platform provider in the UK, according to research by BNY Mellon.
Its report, The future of UK DC pension platforms, published in association with Cerulli Associates, surveyed 54 UK pension schemes and 12 pension consultancy firms.
The report found that the developments and innovations in full-service, bundled platforms, the infrastructure that allows pension schemes to receive combined administration, investment and communication services, will play a defining role in the future delivery of workplace savings provision.
It also found that the traditional consultancy model continues to evolve. After platform providers are appointed, a third of pension scheme respondents confirmed that they would expect a reduced role for their consultants.
Other key findings include:
- 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.
David Calfo, group head of DC strategy at BNY Mellon, said: “The industry has reached a watershed. Developments initiated in the next 12 to 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 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 employer clients
Shiv Taneja, managing director at Cerulli Associates, added: “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.”
