‘Collaboration’ is fast becoming the UK pension sector’s new buzzword – but it could take legislative action before meaningful change is delivered for private sector schemes, according to experts.

Speaking at the launch of the Pension Protection Fund’s (PPF) Purple Book last week, a panel of industry experts including a former UK pensions minister and the chief executive of the pension fund trade association discussed the potential for collaboration and what barriers funds face.

Joanne Segars, chief executive of the Pensions and Lifetime Savings Association (PLSA), told the assembled journalists that there was “quite a lot of appetite for consolidation” among both defined benefit (DB) and defined contribution (DC) pension schemes, particularly in light of the radical changes taking place with the Local Government Pension Scheme (LGPS).

She added: “With smaller schemes, the trustees are less able to get a good deal from their advisers and hold them to account. They are much less able to access to some of the bigger, more interesting and more helpful asset classes.”

Tom McPhail, head of pensions research at Hargreaves Lansdown, said arguments in favour of consolidation were “incontrovertible”, such as improved governance, improved investment returns and greater efficiency.

The concept also has support from regulators – albeit tentative.

Last month, in its scathing review of the asset management sector, the Financial Conduct Authority said the consolidation of pension funds would help bring about greater professionalism, allowing trustees to hold providers to account.

Appearing in front of parliament’s Work and Pensions Select Committee last month, Lesley Titcomb, chief executive of the Pensions Regulator (TPR), said consolidation “could be valuable both in the DB and the DC market because it could bring benefits of scale and cost savings, and drive up standards of trusteeship”.

Andrew Warwick-Thompson, an executive director at TPR, added: “We see huge potential, particularly for those small sub-scale schemes, for bringing them together to support better funding outcomes by reducing their administrative investment and governance costs through some form of consolidation.”

Pooling of assets is no new thing – several of the country’s largest employers have multiple pensions that are managed by one team.

Railpen runs more than £25bn (€29.8bn) on behalf of six different DB and DC schemes, for example, while Lloyds Bank also has a number of separate pension funds under the watch of a single trustee board and investment team.

The Netherlands shrank its total number of pension schemes from more than 1,000 in 1997 to roughly 300 this year. The Dutch regulator believes this could fall further to 200 next year.

However, the PLSA’s Segars said she hoped for a “less aggressive” approach from the UK’s regulators.

A major stumbling block identified by several commentators was combining different liability models. The local government pension schemes’ 89 pension funds all use the same valuation metrics and liability calculations, so pooling assets and other services is relatively straightforward.

In the private sector, this is not necessarily the case.

Also speaking on the PPF’s panel of experts was Steve Webb, who served as pensions minister for five years until 2015 and is now director of policy at Royal London.

Webb said: “There could be an officially sanctioned way of turning [a DB scheme’s] structure into something standardised, which could then be pooled with others with that uniform benefit structure. Then you can get scale and pool them.

“If you can do this in a cost-effective way – that’s always the big question – then you can add them together in some sense. Not necessarily fully merge them, but have a common structure – then they can do stuff together.”

Warwick-Thompson pointed out to MPs that consolidating liabilities “implies that you are somehow severing the link with the sponsoring employer that provides the covenant”. Such a move has serious implications for DB pension security and the PPF.

Titcomb and Warwick-Thompson both suggested “regulatory or legislative intervention” might be needed to get a consolidation movement off the ground.

Richard Harrington, the current pensions minister, told MPs last month the government “has to nudge consolidation”.

“We cannot just keep endlessly talking about consolidation without doing something,” he said.

The PLSA’s DB taskforce is working on ideas to put to the minister, and Harrington said he would be putting together his own proposal to put to the market.

“I look forward to receiving many people’s ideas, but they have to be not just identifying the problem,” Harrington added.

Webb believes there may be legislation on this subject as soon as the next parliamentary session, which begins on 9 January 2017.

One thing is clear: Momentum is building for consolidation.