The DNA of significant financial institutions, which are being created through consolidation, will set the tone and culture of the whole pensions industry, according to Universities Superannuation Scheme chief executive Bill Galvin.

Speaking on a panel session at the PLSA Annual Conference 2019, Wednesday 16 October, Galvin said that it is important to get the DNA of these organisations correct from the start.

“It’s the DNA of these significant financial institutions who will be the future of this pensions industry that will set the tone and culture of the whole pensions industry,” he said.

He stated that the people hired for jobs in the industry now, and the decisions made about what to insource and outsource, will have a big impact on the outcomes that members will see.

Galvin described the changing structure of the pensions industry as “a fundamentally important moment for us and a massive opportunity”. This refers to the consolidation currently happening in the pension industry seen within master trusts, local government pension schemes, and the potential for defined benefit schemes through superfunds.

“It is quite clear that the future will be radically different, but where are assets accumulating now. The Office for National Statistics (ONS) tells us that in private sector occupational pension schemes there are 1.1 million actives in DB and 10 million in DC. The Pensions Policy Institute (PPI) believes that if we roll that forward to 2039 we’ll have 14.2 million actives in DC ,of which 10 million will be in master trusts,” he said.

He described it as an opportunity to shape the industry for future generation, as he believes that industry structure is one of the most important factors in determining future outcomes in any sector. “It drives where value accumulates in the industry value chain and this drives incentives, which drives culture, which drives behaviour.”

Galvin also said he can “imagine a world in which these scale institutions with a very short arm to the member use their market power to drive member outcomes”.

“You can see a world with a constant focus on driving down member charges, and better value for money, looking across the full value chain, ensuring greater accountability….competing for investment opportunities in a way that makes the pie bigger by insisting on higher standards from investee companies.

“We can see how the scale can support the type of outcomes that we want for this industry. We can see why this is an exciting time and a huge opportunity for the industry, there are people in this room now who are building these institutions.”

Galvin also described automatic enrolment as a “game changer” as it has “changed the economics of distribution and fundamentally changed the supply side and prompted regulatory intervention that drives these changes even harder”.

He said the UK is on a path similar to that of Australia but that it has started this journey from a much more fragmented place.

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