Wave upon wave of regulatory change in the UK pensions industry has kept consultants fully occupied in the last year. In particular, the increased flexibility in the way individuals can save for their pension has created more call for their for specialist advice.

"We have had a very busy 12 months, with the implications of the Pensions Act for our clients," says Jeremy Dell, partner at Lane, Clark & Peacock (LCP). The new ‘A-Day' pensions regime came into force in April, which has changed what can be included in personal pension plans, and clients have needed advice on that in particular, he says.

As well as this, anti age-discrimination legislation comes into force in the UK in October. "There is a lot of legislative change… there is still going to be a lot to do before the dust settles," says Dell.

Similarly, Alan Botterill, managing director Europe at Towers Perrin HR Services, sees business being driven by the continuing changes. The deadline for meeting the Pension Protection Fund requirements earlier this year, and the demands created by other changes in the legal framework has led to much number crunching and prompted industry players to think in wider terms about the risks they face.

"I think this will continue a bit longer in terms of the fundamental questions," he says. Questions such as defined benefit (DB) versus defined contribution (DC) are not going to go away quickly, and there are others over funding, asset allocation and who should have control over activities, he says.

Also, among corporates, the panic over deficits has given way to realism. The options are now being weighed; the relative benefits of transferring risks against holding onto them are being considered.

"That kind of thinking has become much more embedded, and we will see more of that," says Botterill.

LCP is winning new clients, says Dell. Though it is a consultancy focused on the UK market, it has sister firms in Switzerland and Belgium, and is increasingly European and international in its outlook, he says.

The anti age-discrimination legislation is the issue of the day for the pensions industry, says Dell.

"In the coming year or two, we should see what happens on the government's white paper for pensions," he says. It will involve some form of simplification and streamlining of pensions law.

Pension schemes in the UK are standing back to look at their benefit stance, and this is driven by the sponsoring companies, says Botterill. Increasingly, employees now prefer flexibility and this, along with the age-discrimination issue, is one of the many HR issues that consultants are dealing with.

Scheme members are now tending to view their pension more as part of the overall pay and benefits picture, he says. The value of a pension is being articulated more clearly, he says. Also, schemes are seeing the priorities of their members in sharper focus. For example, younger members are more concerned with paying their mortgage than paying large sums into their pension, whereas around the age of 45, they realise they need to pay for their retirement. "Employers are trying to respond to that," says Botterill.

Mergers and acquisitions activity is still strong in the UK, and this is naturally creating change within those schemes affected when two companies join forces. "We've been quite active in that area," he says.

Within the investment side of pensions, the main issues are how pension funds should evaluate alternative asset classes, finding the optimal risk levels, says Dell.

"They are trying to reduce risk, but at the same time not impacting on investment returns," he says. These alternative asset classes are a means to diversify portfolios, therefore reducing the overall level of risk.

The consultancy world has changed in that clients are now much more conscious of conflicts of interests, particularly between sponsoring companies and pensions trustees, says Dell. Whereas before, a company and its pension fund would both have used the same consulting firm, given the new environment, that is less and less possible.

"It has created a lot of opportunities for mid-sized firms, like ourselves, to grow their business at the expense of larger firms," he says.

Though UK pensions consultancy business is still strong, there has been a noticeable shift in the service pensions clients expect, says Paul Trickett, European head of investment consulting at Watson Wyatt. "They are looking for us to be more accountable… to be given answers rather than options," he says.

It is a more demanding environment, with greater challenges and more complex issues to face. Advising a UK pension fund client on investment is no longer simply a matter of looking at the arguments of equities versus bonds, but rather involves discussions over risk management and diversification.

"There is a very big movement towards risk management," said Trickett. "There is a greater emphasis on the importance of setting strategy."

In response to this, Watson Wyatt's strategy team has doubled in size in the last two years and is continuing to grow. As well as this, the modelling on which strategy is based is being developed further.

Part of the new challenge with modelling is that asset classes often now have to be modelled using much shorter histories and with less transparency. "That represents a change to the work we are producing." On the manager selection side, clients are looking to the firm to demonstrate how it can actually add value. On occasion this leads to payments that are determined relative to the outperformance generated.Watson Wyatt's very first performance-related fee was charged five years ago, he says, but there has been a significant change in the trend towards this in the last 12 months.

The new environment is much the same for all players in the consultancy market, he says. "What it does is it places a premium on the ability to find outperformance," he says. This means it is difficult for firms that are not global. On the other hand, it has provided some scope for specialist firms.

Investment banks, too, are increasingly moving into the business of advising corporations. However, "consulting firms have the advantage of being very trusted advisers with long-term relationships," he says.

Over the next year, a lot of consultancy work will involve liability management, Trickett predicts. The capacity to carry out transactions is still relatively limited, he says, with demand for inflation swaps outstripping the market capacity. This means advisers will have to explore every other way of achieving the same end.

The firm's other experience is that pension funds are looking for ways to reduce the amount of return-seeking assets that are dependent on outperformance. They are looking at other sources apart from equities, he says.

The crop of new buyout firms which has emerged is an interesting development in the UK pensions scene, he says, and it will be fascinating to see what will happen.

These are specialist, newly established insurance firms, often with hedge-fund backing, whose remit is to buy out pension funds, taking the responsibility away from corporates.