The introduction of low-cost flat-pack furniture to the UK from Sweden in 1987 rapidly changed the face of the British hardware retail market. Today, some 24 years later, a firm from neighbouring Denmark is hoping to shake up the pensions market in a similarly dramatic fashion with a firm 'no thrills' approach to pension provision

ATP's plans to launch a scheme in the UK later this year targeted at low and mid earners has been widely reported, along with its low-cost and hybrid risk philosophy that has allowed it to manage funds in Denmark for a mere £4.74 a year per member. The enormous optimism of the provider does not extend to it planning to offer a financial product from London for such a tiny sum, but nonetheless the group's head of international operations Morten Nilsson confidently confirms ATP "will make it a goal to bring charges down to as close to this figure as possible after five years". 

"It is very easy to offer a really cheap investment portfolio," he says.

According to figures obtained by Pension Funds Insider for 2009, the most recent year for which complete data was obtainable, ATP took 196 million Danish kroner (£22.1 million) in fees from 4.64 million working members in Denmark, equating to £4.74 per member (42 DKK). That amounts to a modest 0.23% of all contributions.

However, as a nationwide statutory occupational pension provider that counts 85% of the total population in its membership, ATP arguably enjoy massive economy-of-scale advantages and political support in Denmark that they would have to do without in the UK, or anywhere else for that matter. Legal requirements for employers to cover all contributions are said to keep administrative costs markedly low – with minimal action needed on workers who change jobs, for instance.

Nonetheless ATP believes that its broader cost-saving strategy can be carried across the North Sea. Nilsson told Pension Funds Insider: "We will have an investment strategy that is not eaten up by costs; rather we will focus on what is adding value for our customers. There will be no fancy stuff but everything that is needed for stable, high returns in the long-run."

Nilsson emphasises that his group do not seek to offer direct competition to the government-backed NEST scheme but adds: "Auto-enrolment seems like a really good idea and companies will want more choice - we can be part of the solution for that." ATP should be able to pitch its services to a greater portion of the working population than NEST's restrictions permit.

"We have quite a different investment approach" admits Nilsson, however, with a mere 14% of their bond and alternative-heavy Danish investment assets allocated to equities at the end of 2010. It remains to be seen how completely the firm's Danish model will be replicated in the UK but a low-risk, low-cost approach could well appeal to sponsors who are facing the upcoming introduction of auto-enrolment having seen an equities crisis burn a hole in many corporate pension plans.

David Pitt-Watson, Chairman of Hermes Focus Asset Management and renowned low-fee advocate told Pension Funds Insider that ATP offers a "very interesting model".

"When it comes to fees we have not built our architecture as well as the Dutch or the Danes," he concedes. "The plans of overseas low-cost providers to operate here are something we should welcome as a country and as an industry; hopefully they will encourage more British companies to offer low-cost pensions."

ATP's Danish plans have been buoyed by a strong performance through the financial crisis due to a decision taken before 2008 to hedge against equity and property losses. "We believe we can give good returns in every environment" is Nilsson's assessment.

It's not just ATP's focus on low cost that sets it apart. The firm is willing to emphasise that it does not share the ambition of many UK-based pension reformers of engaging savers with schemes. "Most members are not interested in pensions and they shouldn't need to be," demurred Nilsson, "we are more than happy to assume responsibility and focus on fulfilling our members' interests."

The upcoming launch of auto-enrolment will potentially open up a huge market in schemes geared to low and average earners and officially-supported NEST are not in any way unwelcoming of the possible competition from ATP. Tim Jones, Chief Executive of NEST has already gone on record to say that the national scheme welcomes "any initiative that will improve pension provision and help culture UK citizens to achieve financial security in retirement."

Pitt-Watson also adds that ATP joining NEST in offering low-cost provision should be good news for British workers. "We should be able to offer the kind of terms associated with NEST to everybody," he says.

dbillingham@wilmington.co.uk 

First published 10.03.2011