A Pensions Institute report co-authored by Debbie Harrison and David Blake estimated that between 2016 and 2020, DC workplace pension scheme assets under management would double from about £280bn to £550bn.
About 90% of these assets - almost £500bn - will be held by what it labelled a premier league of providers – halving the current number of major ones in the market. It will be dominated by large-scale multi-trust DC schemes, the researchers stated.
Continuing their football analogy, the authors said there would be ‘relegated’ providers.
These will include ‘mid-tier’ life and pensions companies and smaller master trusts that “do not have the scale and deep pockets to succeed in a market characterised by scale and a cut-throat pricing war”.
The report stated: “Assets held by relegated providers may be bought by the successful life companies in the auto-enrolment market and by the consolidators – a life-company category that is expected to grow in terms of AUM and the number of participants.
“Several major UK life companies – including those with overseas parents – are expected to sell-up and exit, unless they secure premier league status.
“Exits will be due to the increasing cost of regulatory compliance, including capital requirements, and the potential growth of overseas markets, for example, in Europe, the US and the Asia-Pacific region.”
The report added: “For weaker ‘mid-tier’ life companies, the traditional ‘bundled’ business model and reliance on commission-based intermediaries is anachronistic.
“It is not clear where the strengths of these life companies lie. Protection insurance is ‘under-sold’ at present and may represent an opportunity.”