Last week heralded the entrance of a surprising new player in the UK pensions arena – ATP, the huge, Danish-backed pension provider.

ATP has operated the Livslang Pension in Denmark since 1964 and claims to have made average annualised returns of 7.4% over the past decade.

It’s an interesting time to be competing for business in Britain – with many UK schemes under significant cost and performance pressure.

In the UK, ATP will operate under the brand, NOW: Pensions and will rival the National Employment Savings Trust (NEST), the official new low-cost defined contribution (DC) provider which launches in 2012, in competing for DC pots.

In context, the new chairman of the National Association of Pension Funds, Mark Hyde-Harrison, recently blasted the UK’s system of DC pensions for its inadequacy.

Too many DC plans that are too small to achieve economies of scale and weak governance were Hyde-Harrison’s chief gripes.

It may seem counter-intuitive, but by doing so Hyde-Harrison could be welcoming the Danish outfit into the UK market. NOW: Pensions, will be a multi-employer scheme backed by ATP, which runs the largest pension scheme in Denmark with around 4.7 million members for 160,000 employers.

There are various reasons why NOW: Pensions could be an improvement to the DC plans many employers currently run.

One is governance. NOW: Pensions has assembled a heavyweight group, from former trade union leaders to pension experts to trustees of the new scheme.

In contrast, many insurance companies have in the past sold DC schemes to employers on the lack of governance, on the basis, this reduced the admin burden associated with running a pension scheme.

In terms of charges, the new scheme will have a 0.3% annual management charge and a £1.50 contribution fee, which it says equates to a 0.5% annual cost.

This is at the bottom end of the range of fees currently paid by DC plans and is similar to NEST.

Together, these two schemes could set a benchmark in the market, just as stakeholder pensions, with a 1% annual charge cap, did around 10 years ago in the UK.

But stakeholder pensions offer two lessons at least to today’s DC market. One is that if providers cannot make money on a low-charge product, they cease to promote it.

Here, NEST is a state-backed organisation, so the normal considerations of profitability don’t apply, although it cannot be seen to be a drain on the public purse. NOW: Pensions says it can operate on its charging structure and given that its Danish parent is understood to have a cost structure of around 20 basis points a year per member, this seems quite feasible.

One reason for its ability to keep costs down is the fact it will only offer a single investment fund, which is diversified among five asset classes.

Here, NOW: Pensions claims to be reducing choice for positive reasons, as many employees find investment decisions confusing.

This approach to DC pensions can be compared to someone visiting a doctor for medicine.

The patient doesn’t want to choose which medicine he is given from a range of drugs; he simply wants an expert to make the correct decision for him.

Both these new DC schemes will save on marketing costs to a large extent, as from 2012 employers will have to auto-enrol staff into new schemes.

This should mean the new DC plans avoid the fate of many ’empty box’ stakeholder schemes, which employers were required to set up but remained empty because staff did not have to join.

Under the 2012 reforms, both employees and employers are required to contribute, so money will flow into a new scheme, although the big unknown is the opt-out rate among reluctant employees.

NOW: Pensions says it does not have a minimum size for contributions or members at employers who wish to use it, but asks that all member records are computerised.

Also, it will not pay fees or commission to financial advisers or benefits consultants. This will limit their interest in distributing it, but if it builds up a head of steam, it could become a popular ‘go to’ choice among employers.

Breaking into a new market is never easy for a variety of reasons and the vested interests in the UK DC market will no doubt resent the interloper from Denmark. But, along with NEST, it could be part of a transformation of the UK’s DC market towards a Hyde-Harrison’s vision of fewer, larger, better run and cheaper DC plans to cater for the millions of UK workers either without a pension or in an expensive and poorly run plan.