A wave of consolidation is coming in the UK’s pension sector as bigger master trusts guzzle up smaller peers and the government throws its weight behind reform, a top UK pension chief has predicted.
Jamie Fiveash, the UK chief executive of pension firm Smart Pension, said the firm was actively scoping out a range of deals among its smaller employer-led schemes and other master trusts.
Smart last week announced it had snapped up its smaller master trust rival Evolve Pension, which ran the £750m Crystal Master Trust, to take its overall assets to over £4bn and total members to 1.1m.
The deal came as a boost to Chancellor Jeremy Hunt and pensions regulators as they embark on a drive toward consolidation in the hope of unlocking fresh pools of capital and a wave of funding for companies.
In a speech to the Square Mile at Mansion House earlier this month, Hunt announced plans to merge more pension schemes to try and pool assets and allows funds to benefit from scale.
Smart Pension’s Fiveash told City A.M. that the sector was now poised for a flurry of mergers and acquisitions.
“You’ll move from around 1,800 single employee trust and 35 master trusts in the next five years, down to in the hundreds in total and probably only about 20 master trusts,” he told City A.M.
“It’s going to massively reduce, and the government and regulators are pushing towards that.”
Smart Pension has been on an acquisitive drive in recent years and has snapped up a range of defined contribution (DC) pension schemes, in which employees pay a set amount toward their pension pot and reap the returns. The size of the schemes has swelled since the roll out of auto-enrollment in 2012 and master trust have become a vehicle for schemes to pool their assets.
Smart’s latest deal with Evolve Pension comes after it has already absorbed nine of its peers including the Ensign Master Trust, the Welplan Master Trust, the Corpad Master Trust and Corporate Pensions Trust.
Fiveash said Smart was currently scoping out “between five and ten” more trusts with plans for potential deals in the next two years.
“I think it’s still going to consolidate, is probably the message, and we’re obviously very interested in actively talking to the participants if they want a conversation,” he said. “We’re actively looking for opportunities on mergers and ways of ‘bringing in two to make a better one’.”
Schemes may also soon be under pressure to consolidate further as part of the government’s push for consolidation. As part of the Treasury’s plans, Hunt will grant powers to the Pensions Regulator to force underperforming DC schemes into mergers with more successful peers.
“Pension schemes which are not achieving the best possible outcome for their members will face being wound up by the Pensions Regulator,” Hunt warned.
The measures came alongside a commitment from some of the country’s top insurance firms, which have ‘bought out’ the older defined benefit (DB) schemes, to commit five per cent of their assets to private unlisted companies.