We operate in a specialist market, where regulation is driving change
Our primary marketplace is the UK workplace pensions sector.
We provide consulting and administration services relating to defined benefit (DB) and defined contribution (DC) schemes.
DB schemes face significant challenges to ensure they are sufficiently funded in the long term to provide members with their full benefits
- There are >5,300 DB schemes in the UK, with aggregate liabilities of over £2 trillion.1
- These schemes are long dated; there are 9.9 million DB scheme members and 57% are yet to retire. Benefit payments from DB schemes will continue for decades into the future, and are not forecast not to peak until 15+ years from now.1
These schemes are heavily regulated and trustees and companies require compliance, investment, actuarial and risk management advice in addition to cost effective administration services.
DC pension provision is a growing and evolving market. We provide consulting and administration services to DC schemes, and also operate a DC master trust called ‘National Pension Trust’.
We also provide administration services in the SSAS and SIPP market.
1 The Purple Book, PPF, December 2020
Key market drivers
The new Pensions Act that comes into force this year aims to provide greater safeguardsfor the DB market. In combination with new regulations being introduced by the Pensions Regulator, it increases the pressure on the corporate sponsors of pensions schemes that are in deficit. The new regulations require higher levels of funding and/or security for schemes, and bring in criminal penalties for those who neglect their responsibilities to members. These developments mean our clients need advice on new investment and de-risking strategies that our Advisory division (the combination of Pensions Actuarial & Consulting and Investment Consulting) can provide.
The Competition and Markets (CMA) Review continues to drive opportunities for our Pensions Investment Consulting division in the area of fiduciary management oversight. This summer sees the deadline for trustees to competitively tender fiduciary appointments that were not tendered when set up, and we have been engaged by many trustee boards to support with this. This in turn creates new client relationships that can lead to opportunities for us to provide
a wider range of services.
Recent court rulings that all Guaranteed Minimum Pension (GMP) benefits in UK pension plans must be equalised for males and females has created a challenge for around 90% of all UK DB schemes. Across the industry, there is a large amount of work to be done, that will probably take years to complete, to advise on and then implement solutions to equalise GMPs. XPS is providing pragmatic solutions to clients to complete this complex work.
DC pension provision has become much more challenging for employers in recent years, following the advent in 2015 of ‘Freedom & Choice’, which meant members of such schemes no longer needed to purchase an annuity at retirement. This, and other regulatory changes, have made running a single trust DC scheme (as many employers did) increasingly complex and expensive to do.
DC Master Trusts are umbrella vehicles that aim to provide a workplace pension that can be used by multiple unrelated employers who can each benefit from the economies of scale of a larger vehicle to be able to provide a high quality modern DC scheme in a cost effective way.
The master trust market is growing fast, with £38 billion AuM as at 31 December 2019*, predicted to grow to £200 billion in 2025 and £340 billion in 2030**.
Since 2019 all master trusts required authorisation by the Pensions Regulator. The authorisation process was necessarily rigorous and saw the number of master trusts reduce from over 80 to 38 today***.
The XPS master trust is called National Pension Trust and is fully authorised, benefitting from these trends.
* 2020 Master Trust Survey EY Pension Consulting 2020
** Source: Master Trust and GPP Default Report , April 2021 Corporate Adviser Intelligence
*** Source: The Pensions Regulator website April 2021
For many years there has been a trend for companies undertaking pensions administration ‘in house’ to outsource this work to a third party. This has been driven by the increasing complexity of pension regulation. Currently there are over 150 large pension schemes where the administration has yet to be outsourced, and we expect a number of these to come to the market in the coming years.
The trend to outsource the pensions administration of large schemes is likely to accelerate following the pandemic as in-house teams struggled to be able to cope with the sudden shift to remote working. Alongside the opportunity to win ‘first time outsourcings’, early contracts from 5-10 years ago are now coming up for renewal and clients are looking for improved service standards, leading to organisations switching suppliers.
With our strong reputation, endorsed by our second year winning ‘Pensions Administration Firm of the Year’ in 2020, XPS is well positioned to compete in this growing market segment.
With regulations and government oversight increasing, there is an emerging trend towards the consolidation of small DB and DC schemes driven by need to drive scale to reduce costs, reduce risk and enhance governance and invest to improve member security. XPS has deep expertise in the provision of services to small schemes and has developed a number of service offerings to specifically address this market opportunity.
More widely, the market of service providers is fragmented. We expect consolidation to continue at all levels within the market, particularly at the top end and this dynamic presents growth opportunities for firms like XPS in the ‘mid-tier’. At the other end of the spectrum, there is a long tail of small providers of consulting and administration services, and we expect to see these consolidate. As the largest independent specialist in the sector, XPS will take advantage of the opportunities this presents to grow its business inorganically, in line with its strategy.