Jonathan Jackaman, Head of DB Distribution at TPT, discusses the options that are now open to you, irrespective of what stage you are in your long-term path, since DB pension schemes consolidation options may make it difficult to determine which option is appropriate for your strategy.
He stated, “Each consolidation option offers different benefits. As with most things, it all comes down to finding the right approach for your scheme, sponsor and members. In many cases, you may find it beneficial to use different consolidation options as you progress through your end-game journey. For example, moving to a single provider for all services to resolve both data and illiquid asset issues, then to a master trust, before finally securing members’ benefits through buyout”.
Since the Department for Work and Pensions (DWP) published its white paper on ‘protecting defined benefit pension schemes’ in 2018, an array of new products and solutions have arisen in the market to assist trustees and sponsors in implementing consolidation measures.
Excluding from the broader public sector, the great majority of UK businesses are currently offering defined contribution (DC) schemes to existing employees. For newer developments, integrated DC configurations are ‘the standard’. Over the last decade, several previously ‘unbundled’ own-trust DCs have likewise embraced a streamlined structure.
The accomplishments of consolidation in DC will provide a strong incentive for trustees and sponsors to investigate how they may benefit from comparable economies and advantages of scale on the DB side. And, given the variety of alternatives now available for DB plans, there is likely to be an amalgamation strategy that will benefit your plan no matter where you find yourself on your path.
Combining any or all aspects of your strategy’s management can result in considerable savings in both time and expenses, as well as improved quality and reduced (or, in some circumstances, eliminated) the strain on your trustees.
The Positive Impacts of DB Pension Scheme Consolidation
Cost Efficiency
Through efficiencies in service provision, schemes can embrace a streamlined approach to running a scheme, with known and predictable costs, enabling better budgeting control and cost control.
Enhanced Governance
By aggregating relationships with service providers – you can gain access to specialists with one point of contact. By reducing the amount of time spent liaising with several service providers, consolidation leads to improved efficiency, and accountability, allowing trustees and the sponsoring employer time to direct their attention to more important strategic issues.
Risk Control
With increasing regulations, consolidation can provide a more efficient way to run a pension scheme and prepare the scheme for its end game, whether that be a buy-out, a superfund, a run-off, or something else, with a clear strategic focus. Minimise financial exposure by managing advisory costs and setting a clear trajectory towards the pensions long-term objectives, reducing uncertainty.
Investment Access
Consolidation helps give access to strategies, tools and investment classes only available to larger schemes. By being part of a larger fund, schemes can take advantage of efficiencies generated through economies of scale.