Key Takeaways
- • Mercer agreed to acquire Netherlands-based pension manager Cardano, which owns NOW Pensions, the UK's third-largest master trust, positioning Mercer as an end-to-end DC provider spanning large corporate and auto-enrolment (AE) schemes.
- • Mercer intends to keep the NOW Pensions brand separate from its own master trust for now, offering flexibility to use NOW for smaller employers while its master trust serves large and multinational clients.
- • The acquisition brings Cardano's fiduciary management and LDI capabilities, but both NOW and Mercer face documented administration challenges, and NOW has underperformed AE peers, notably during the late-2022 market turmoil.
- • Stabilising NOW's returns is a key priority ahead of Value for Money regulation, which will place much greater focus on member investment performance.
- • Mercer's position is strengthened as Labour has promised a pension-landscape review if it wins the election, making it a potential leading voice on the future of AE and DC pensions.
Summary
Mercer has acquired Netherlands-based pension manager Cardano, which owns NOW Pensions, the UK's third-largest master trust, according to Money Marketing. The deal disrupts a DC pensions market that has long been split between consultant-led master trusts serving the largest corporate clients and standalone AE master trusts such as NEST, NOW and The People's Pension, which serve small and medium-sized employers. Money Marketing's analysis, written by Robert Holford, head of research and regulation at Altus Consulting, argues that the combination gives Mercer a comparable offering to large life companies such as Aviva and L&G, and differentiates it from other consultant-led master trust rivals.
The immediate attraction of the deal may be Cardano's fiduciary management and LDI capabilities, but the longer-term value lies in DC growth and the NOW Pensions franchise, which holds a significant share of the core AE market. Mercer's decision to keep the NOW brand separate from its own master trust for now suggests a menu-based approach for smaller employers, with its master trust focused on demanding large and multinational corporate clients. It also signals caution, as margins in the AE segment remain tight. Keeping NOW separate allows Mercer to spin off pension administration to Aptia if that service is later deemed non-core, while retaining control of the master trust's fiduciary management.
The analysis notes significant risks. Both NOW and Mercer have well-documented administration challenges, and Mercer has acquired a scheme partway through a complex re-platforming of its own, having recently divested its troubled administration platform. NOW has also lagged AE master-trust peers on performance over the past couple of years, particularly during market turmoil at the end of 2022. The current plan is to keep the Cardano investment-management team in place, although Mercer runs its own AE investment service that could replace the NOW offering.
Stabilising NOW's investment returns is expected to be a central focus, given forthcoming Value for Money regulations that will place much stronger emphasis on investment performance delivered to members. With Labour promising a pension-landscape review should it win the election, the analysis suggests Mercer is well positioned to shape the future direction of the AE project and DC pensions more broadly.
The immediate attraction of the deal may be Cardano's fiduciary management and LDI capabilities, but the longer-term value lies in DC growth and the NOW Pensions franchise, which holds a significant share of the core AE market. Mercer's decision to keep the NOW brand separate from its own master trust for now suggests a menu-based approach for smaller employers, with its master trust focused on demanding large and multinational corporate clients. It also signals caution, as margins in the AE segment remain tight. Keeping NOW separate allows Mercer to spin off pension administration to Aptia if that service is later deemed non-core, while retaining control of the master trust's fiduciary management.
The analysis notes significant risks. Both NOW and Mercer have well-documented administration challenges, and Mercer has acquired a scheme partway through a complex re-platforming of its own, having recently divested its troubled administration platform. NOW has also lagged AE master-trust peers on performance over the past couple of years, particularly during market turmoil at the end of 2022. The current plan is to keep the Cardano investment-management team in place, although Mercer runs its own AE investment service that could replace the NOW offering.
Stabilising NOW's investment returns is expected to be a central focus, given forthcoming Value for Money regulations that will place much stronger emphasis on investment performance delivered to members. With Labour promising a pension-landscape review should it win the election, the analysis suggests Mercer is well positioned to shape the future direction of the AE project and DC pensions more broadly.
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