UK - The chairman of the National Association of Pension Funds (NAPF) has suggested that the UK Pensions Regulator should be granted powers to force the merger of inefficient defined contribution (DC) schemes with larger 'super trusts'.

Speaking at the NAPF investment conference in Edinburgh last week, Mark Hyde Harrison argued that the launch of up to 6 super trusts would allow the "institutionalisation" of the DC market, warning that it would produce "much worse" results if it remained in the hands of retail providers after auto-enrolment.

Hyde Harrison was outlining his vision for the future of the UK pensions landscape and once again highlighted his organisation's wish to see the creation of larger DC plans in order to improve governance and allow for a more diversified investment approach.

The organisation first put its super trust proposals forward to the Adair Turner-chaired Pensions Commission, whose recommendations led to what became the National Employment Savings Trust (NEST).

The chairman said current trust-based occupational DC schemes were "just not going to be able to meet the governance, cost and certainty marks" to compare favourably with those a super trust could offer.

"The regulator might well get a power saying 'you've got to meet these standards, and if you can't, you've got to transfer your benefits over to one of these super trusts, where member benefits are going to be well looked after'," he said.

Hyde Harrison's proposal echoes changes to the superannuation system in Australia, with Challenger chairman Jeremy Cooper highlighting new regulatory powers introduced in the wake of an eponymous review of the retirement system.

Cooper, who delivered his report to the Australian federal government in 2010, said the 350-odd DC funds in the country would soon undergo annual 'health checks' supervised by the regulator - putting the scale issue "right in the laps" of trustees.

Cooper, a former deputy chair of Australia's Securities and Investments Commission, said: "Below-scale funds that don't have an explanation as to how they are achieving economies of scale - either through natural growth or mergers - are going to get into fairly uncomfortable discussions with the regulator going forward."

Hyde Harrison outlined some of the advantages of the NAPF's super trust proposal, saying they would not have "provider or commercial interest" dominating their strategy.

The former chief executive of the Barclays UK Retirement Fund added that, unlike now, when the asset management industry develops new vehicles and then offers them to pension funds, the schemes would build products around the needs of members.

"If we continue in this world of DC at the moment, then consumers have no buying power," he said, adding that the introduction of bigger schemes would lead to DC as a whole shifting from retail providers to an institutional mindset.

"If DC in auto-enrolment remains retail, it will produce much worse outcomes."

However, Hyde Harrison said the super trust model would also be likely to lead to a reassessment of current liquidity and pricing within the DC model.

"The issue of daily pricing of assets in the DC space will be challenged in this world because they are going to be looking hard to a wide range of investment opportunities available," he said.

"These sorts of funds will set up structures allowing adequate liquidity but no longer will need to provide daily pricing and daily liquidity."