Consolidation as a means of achieving better outcomes for pension schemes is a growing trend. This was highlighted in the UK’s Department for Work and Pensions’ (DWP) 2018 White Paper on protecting defined benefit (DB) pension schemes.
Consolidation as a means of achieving better outcomes for pension schemes is a growing trend. This was highlighted in the UK’s Department for Work and Pensions’ (DWP) 2018 White Paper on protecting defined benefit (DB) pension schemes.
However, the term ‘consolidation’ is in itself extensive in relation to what it exactly means to pension schemes.
According to several investment consultants, consolidation should seek to achieve one or a combination of several goals: create efficiencies of scale; improve governance through greater delegation to specialists; allow for access to options through scale; and transfer of responsibility for providing the benefits.
There are various options to consolidation, such as merging or fiduciary management. But the buzz revolves around ‘commercial consolidation’ or ‘superfunds’.
The Pensions Regulator (TPR) launched new guidance in June which set out its expectations for how DB consolidator superfunds must show they are well-governed and backed by adequate capital. It also explained how they will be assessed and regulated.
The UK’s two commercial consolidators, Clara Pensions and The Pension SuperFund, launched soon after DWP’s 2018 consultation and the latter has been subjected to meticulous scrutiny by TPR to make sure it can deliver the protection savers need and the choice that employers require (see page 7).
TPR maintains DB superfunds can offer benefits for pension savers and sponsoring employers. However, superfunds are new so there could be reputational concerns. There is no track record to assess administration experience or the long-term financial strategy. If a consolidator does not build critical mass, it may look to exit and pass on accumulated liabilities to another vehicle.
It is likely that consolidation will be right for a small number of schemes, but a market could be created from even a small proportion of the £2trn (€2.2trn) of UK DB pension liabilities.
Venilia Amorim, editor, IPE.com
venilia.amorim@ipe.com
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