Pensions sector eyes productivity amid M&A drive

Unprecedented regulatory change has created a very different pensions landscape. Amid the turbulence of global equity markets and drive for market consolidation, senior leadership teams now only have one objective on their mind – efficiency. But after such a shake-up, does the Life & Pensions industry have the talent to deliver?

The seismic shift in pension regulation, such as the full introduction of auto-enrolment and RDR, set off the starting gun for a period of growth and change. There is now a scramble for scale as funds look to combat chronically low interest rates, pricing challenges and escalating compliance costs.

These factors have so far set off speculation, discussions and completed transactions among asset managers. And in the public sector, the pooling of schemes will no doubt be a theme for 2016 with the Lancashire and London Pensions Partnership set to pave the way for the rest of the market.

There is also mounting pressure from nimble, tech-savvy new entrants that are rapidly stealing market share, particularly at the lower end of the market. In response, traditional firms must innovate and rethink the way that funds are managed and customers are engaged with. By speeding up their processes and embracing automation, pension funds will better facilitate mergers, address regulatory and compliance demands and cope with the ‘capacity crunch’ that is engulfing much of the industry.

In my conversations with management teams from across the sector, they all agree that they must become more productive and lower costs if they are to survive. However, their ability to deliver such change with the manpower they have is a little less certain. 

The first hurdle will be in overcoming the pension industry’s geographic spread. While much of the financial services sector is heavily concentrated in London, many pension providers have significant and sizeable operations throughout the country. With much of the pool of specialised skills and experience gravitating towards the capital, regionalised firms can struggle find suitable candidates for even for mid-tier roles, let alone those in senior management positions.

The second challenge is to move on from traditional views on recruitment. Historically, the pensions industry has reserved temporary support at the executive level as a gap-management tool to provide cover for more functional roles. Now, more than ever, there is a real need for an influx senior-level talent to oversee the large scale transformation required throughout the industry.

The deployment of interim managers into key roles is not a new phenomenon, but bringing an external leader to define strategic change can often be seen as a leap of faith. For that reason, it is important to understand not only the background and track record of the interim management provider, but of the individual delivering the assignment.  The good news is that with the quality of individuals available, L&P providers can access the interim market with confidence.

Market consolidation and the natural attrition associated with M&A has encouraged some former industry leaders to consider a career change and become an interim manager. These sought-after individuals, with backgrounds in insurance, banking, asset management and risk and compliance, now offer a valuable and flexible resource of knowledge and experience.

Parachuted in at often last-minute and taking on leading roles in transformation projects – from implementing new IT systems and evaluating processes and operating models to overhauling HR functions, interims can be game-changing.

But, amidst such turbulence and often constrained by tradition, I fear that the pensions industry might not recognise the support that is out there. Without the initiative to take advantage of the talent that is available, it won’t be long before the challengers – who have the momentum and are attracting some of the best minds in the sector - will become the market leaders and turn the whole industry on its head.