“Ultimately we believe that most schemes can benefit from consolidation in some form. The industry is starting to wake up to the fact that there is a spectrum of options dealing with the varying needs of different DB schemes. While we’re beginning to see a shift, it’s still early days. The advisory community needs to look at the issue differently for more conversations to happen.
“Many of the benefits promised by scheme consolidation are already available today. Champions of consolidation talk about better governance, access to better advice, lower unit running costs and access to better investments. Solutions already exist which offer all of these benefits through a variety of forms: e.g. bundled advisory models, investment platforms, DB master trusts and sole trusteeship.
“In addition completing a series of buy-ins and ultimately a buy-out through the insurance regime is an existing consolidation option, which we expect will remain the right option for most schemes. The strong pricing we are seeing at the moment in this market means schemes could already be materially closer to achieving this goal than they think.
“However, there is room for the industry to collaborate more on other consolidation options. For example, investment platforms could offer a great deal of promise in terms of cost savings and operational improvements. But without scale, the cost savings are not forthcoming which can be a barrier. If the advisory community worked together to create that scale then that could be of significant benefit to all schemes.
“While not essential for consolidation, enabling or facilitating easier conversion of benefits to a standardised form prior to, or as part of consolidation, would likely drive more consolidation. This would bring down the upfront transition costs which can sometimes be a barrier to certain forms of consolidation, for example transferring to a master trust. Enabling the conversion to a standardised benefit structure with associated cost savings could also incentivise schemes to tackle legacy data and benefit issues sooner rather than later, which in itself could generate future cost savings – a virtuous circle which would create value for the scheme
“In addition to existing approaches to consolidation, we’re seeing innovation in terms of commercial consolidation. These emerging concepts require regulatory support to test the concept in practice. If, as an industry, we can get the approach to commercial consolidation right, this could be a win-win for pension scheme members, for UK business and for investors.”
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