For DB schemes considering consolidation, it can be challenging to establish which solution is the best fit for your scheme. Jonathan Jackaman, Head of DB Distribution at TPT, explores the options now available, for wherever you are on your endgame journey.
Since the Department for Work and Pensions (DWP) published its white paper on ‘protecting defined benefit pension schemes’ back in 2018, a variety of new products and services have been developed across the industry – all designed to help trustees and sponsors embrace consolidation.
Outside of the public sector, the vast majority of UK employers now offer defined contribution (DC) schemes for current employees. Consolidated DC arrangements are very much ‘the norm’ for newer schemes. And over the past decade, many previously ‘unbundled’ own-trust DC schemes have also moved to a consolidated model.
The success of consolidation in DC is likely to be a key driver in getting trustees and sponsors to consider how they can benefit from similar efficiencies and economies of scale on the DB side. And, with the plethora of options now available for DB schemes, there is likely to be a consolidation approach that could benefit your scheme, wherever you are on your journey.
Consolidating some or all elements of managing your scheme can create significant time and cost savings, while improving quality and reducing (or, in some cases, removing entirely) the burden on your trustees.
Jonathan Jackaman, TPT’s Head of DB Distribution, noted, “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”
The Benefits of DB Pension Scheme Consolidation
Cost Efficiencies
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
The consolidation of DB schemes 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.
About TPT
TPT’s mission is to make pension schemes perform better for everyone, from the employers and trustees who have their own schemes to the members who are saving for the future. Their 75+ years in pensions have given them the experience, heritage and scale needed to provide market-leading pension schemes that people can feel confident about.
HedgeThink.com is the fund industry’s leading news, research and analysis source for individual and institutional accredited investors and professionals
