Having fallen behind on innovation, the golden age of the life and pensions industry is a thing of the past. But opportunities still remain for companies willing to reinvent.
More than 60 life companies have closed to new business over the past 30 years. And of the 20 or so remaining, at least half have question marks hovering over their future strategies.
These are statistics from a recent talk by independent consultant Malcolm Kerr called ‘Life companies, platforms, mutual funds and financial advisers – alive or dead?’ One of the joys of my ‘portfolio living’ style of retirement (a concept I first discovered through Barrie Hopson of the ‘Renegade Generation’ of over-50s) is to chair The-Pensions-Net-Work. This is a meeting place and discussion forum for seniors working in the pensions and long-term savings industry. At our last meeting, we were lucky to hear Kerr’s talk.
Deciding to check these statistics, I came across a survey of personal pensions from July 1994 with the rather extraordinary title, ‘Personal pensions get the bum’s rush’. This was a reference to the fall in the number of new personal pension contracts as a result of the ‘transfer debacle’ (distinct feelings of déjà vu when reading this!).
That survey had personal pension new business figures from 49 life companies, for the calendar year 1993. Of those 49 companies, only seven are still open to new business. This confirms Kerr’s analysis.
Stuck in their ways
Having worked in the life and pensions industry for nearly 50 years, I find it disappointing the industry has not moved with the times. I recently came across a brochure given to me by my first employer, Sun Life Assurance. It was entitled ‘A place in the sun’, and showed a suited man happily walking, briefcase and umbrella in hand. It was advocating a career path that led to working as an ‘inspector’ in the sales team.
But this was an era where staff benefitted from interest-free mortgages and non-contributory defined benefit pensions, as well as sports and social facilities to die for. It was a different world, with technology only in its infancy.
One can debate what went wrong for most of these life companies. I would suggest there was simply a wholesale failure to adapt to changing customer needs and saving patterns, as well as a misplaced complacency that the old solutions were the best.
Failure to invest in new technologies has led to the huge array of legacy products and systems that continue to haunt the industry. It is one of the main catalysts for the growth in investment platforms. Although, as we have seen over the past few years, they are not necessarily an automatic panacea for commercial success.
In his talk, Kerr argued there were a number of key ingredients to be successful in this new world of millennials and post-millennials. These included capital, innovation, agility and leadership, along with customer obsession. Historically I believe most life companies failed on just about all counts.
Remaining life companies have had to reinvent themselves: as asset managers, platforms, specialist providers of protection, workplace pensions or Sipps. Time will tell how successful these reincarnations are.
It is clear many life companies have opportunities linked to the ageing population. To date, innovation and agility have been conspicuously lacking in the post-pension freedoms arena. Yet, the prize is huge. I estimate the stored up capital in Sipps alone is more than £200 billion. Over time, most of this will need to be converted into some form of income solution.
Similar challenges and opportunities will arise as the auto-enrolment market starts to mature. And there are also huge sums currently invested in housing equity that may be needed to fund care needs in the future.
It is unclear just how many current life companies will still be active over the next 10 to 15 years, and able to take advantage of the opportunities. Many of these opportunities may be of interest to a new generation of solution providers: those that are not life companies and are not constrained by legacy issues.
John Moret is principal of MoretoSIPPs