Survey finds limited support for commercial DB consolidators

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Less than half of pension fund trustees say that moving scheme assets to a commercial consolidator would “significantly improve” the defined benefit (DB) pension landscape in the UK, a survey has claimed.

According to Willis Towers Watson (WTW), the consultancy group, just 43% of the 93 UK pension fund trustees canvassed said they backed the efficacy of commercial consolidators.

Only 26% of respondents said they would feel “comfortable” about transferring their assets to a superfund.

“Many trustees are expecting to be asked by their scheme sponsor to sign off on moving the scheme into a consolidation vehicle, but our research shows that very few would feel comfortable weighing the potential benefits and disadvantages at this stage,” said Gareth Strange, senior director at Willis Towers Watson.

“It’s a difficult decision that trustees aren’t used to making.”

Superfunds are relatively new to the UK pension fund industry. Earlier this year, the Pension SuperFund – led by CEO Alan Rubenstein, the former chief executive of the Pension Protection Fund (PPF) – launched with the aim of attracting £500bn (€570bn) of pension assets.

However, questions remain over the future legislative and regulatory framework for the new vehicles.

Earlier this month, the PPF warned in a submission to the UK’s influential parliamentary Work and Pensions Committee of the “significant risks posed by ‘superfund’ consolidators”.

The PPF said: “Essentially, if the superfund model gains traction and superfunds achieve sufficient scale, they could pose a systemic risk to PPF levy payers who would essentially be underwriting their investment strategy.”

Yet for others, the economies of scale offered opportunities to both cut costs and apply pressure to reduce fund management fees. Earlier this month, WTW launched a defined benefit (DB) scheme management service that it said could provide pension funds with a pathway to joining a consolidator.

However, Strange warned that the process was not always straightforward.

“The sweet spot for these consolidators is likely to be schemes that are already reasonably well funded and where the employer could inject some extra cash quickly, but in order for trustees to sign off on it, they would have to be confident that the consolidator’s long-term viability is stronger than that of their own scheme sponsor,” he said.

“This could result in quite limited take up for superfund consolidation vehicles.”

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