The UK pensions industry has been told to prepare for an increase in consolidation in individual pension pots and pension schemes, as panellists at the Pensions and Lifetime Savings Association (PLSA) annual conference in Manchester this week predicted that there will be a significant amount of consolidation happening in the market by 2035.

This will be seen across defined benefit (DB) schemes and defined contribution (DC) schemes, according to Steve Webb, partner at LCP.

Sarah Smart, chair of the Pension Regulator

Sarah Smart, chair of the Pension Regulator urged the pensions industry to prepare for DC and DB consolidation

Webb added that small pots will also be swept up by the default consolidator model, predicting that NEST will act as a consolidator. He said: “It already got so many of the small pots, it will have the rest”.

Sarah Smart, chair of The Pensions Regulator (TPR), agreed that in 12 years we will see the “real impact” of consolidation.

She said: “There will be some very large DB schemes, both open and shut, and they will be run by very sophisticated, well-trained individuals, still supported by lay trustees and those individuals will have to meet quite a high bar to demonstrate that they can be entrusted to look after those very significant sums of money.”

Smart added that there will be a “small-ish” number of very large master trusts competing directly to consumers based on the value that they present to consumers.

Smart continued: “Consolidation of pots will really help with that.”

As a result, the requirements on TPR as a regulator “are going to be significantly different”, Smart acknowledged.

She said: “We are prepared for that and we’re working towards that.”

She said, however, that teh industry woudl have to “wait and see” what that would look like.

She urged pension schemes to think about what consolidation means for them and “really think about how to prepare for that”.

She continued: “Does it mean actually we’re a small scheme, do we need to do it? Does it mean we’re a big scheme, and it’s going to be more difficult for us to get the talent that we need to run? How, as a regulator, do we need to adapt to that period of consolidation? As an adviser, what does that mean to our market? How do we change and make sure we don’t necessarily prevent it?”

She urged the industry to prepare for “what the future is going to look like now”.

The latest digital edition of IPE’s magazine is now available