Consolidation: A challenge facing smaller schemes

Defined Benefit

Running a defined benefit (DB) pension scheme is continuing to be an ever increasing challenge for UK businesses and scheme trustees as updated regulations are refined further. The Pensions Regulator (TPR) are working to safeguard schemes by ensuring that scheme employers and trustees fulfil their obligations to their members. These refinements have the member’s savings at the forefront of their focus, but the implementation of the rules will become more and more tricky as time goes on. With continued consolidation on the TPR’s radar, the message from TPR is crystal clear: Keep up or consolidate.

With TPR adding the first DB consolidation vehicle (DB Superfund) to the list of superfunds that have met tough standards of governance and administration in November 2021, it is obvious that their focus moves towards a market dominated by superfunds and master trusts. TPR executive director of regulatory policy, analysis and advice, David Friars, has said “We will work with the market on the further development of innovative models such as superfunds, which have the potential to offer benefits for pensions savers and sponsoring employers, such as economies of scale and good governance”.

Defined Contribution

The speed of DC and DB consolidation over the past few years has shown that TPR believes that consolidation is a more than viable option for moving the market towards good governance and safeguarding the interests of members; however, this does not mean that all hope is lost for the smaller sized schemes.

Trustees need to be proactive and optimistic. Offering good governance, value for money and providing the best outcomes for members must be their main focus while looking to the long term and refining their objectives in key areas such as risk management, and administration. Trustees should be ready to pounce on new opportunities that will help de-risk their member’s assets.

Smaller DC schemes urged to show they offer value or wind up

The majority of trustees of DC pension schemes with fewer than 100 members are not aware of their responsibilities with regard to the newer, more thorough value for members assessments, according to an Annual survey of DC pension schemes.
DC trustees are required by regulations to assess their scheme’s fees, levies, and investment results against those of three other larger schemes if their asset under management is less than £100 million.

Our viewpoint is that pension schemes need to continue to be diverse. They need to ensure their day-to-day functions are adapted to meet the ever-changing demands and constraints of the market and background legislation to survive. Without this, TPR may force the hands of smaller schemes to consolidate where possible.

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